01
Corporation Tax Rates & Thresholds
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Corporation Tax is charged on the profits of UK limited companies. For 2026/27 the tiered system introduced in April 2023 remains in place.
| Profit Band | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,001 – £250,000 | 19%–25% | Marginal relief applies |
| Over £250,000 | 25% | Main rate |
Marginal Relief
Companies with profits between £50,000 and £250,000 receive marginal relief, which tapers the effective rate between 19% and 25%. The thresholds are divided by the number of associated companies.
Capital Allowances
| Allowance | Rate |
|---|---|
| Full Expensing (new plant & machinery) | 100% first year |
| Annual Investment Allowance (AIA) | 100% up to £1,000,000 |
| Main pool (other plant & machinery) | 18% writing down |
| Special rate pool | 6% writing down |
| Structures & Buildings Allowance | 3% per year |
Payment Deadlines
Small companies pay Corporation Tax 9 months and 1 day after the accounting period end. Large companies (profits over £1.5m) pay by quarterly instalments.
02
Income Tax Bands & Personal Allowances
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Income tax rates and bands are unchanged from 2025/26 for England, Wales, and Northern Ireland. The personal allowance freeze continues.
England, Wales & Northern Ireland
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Personal Allowance Taper
The Personal Allowance reduces by £1 for every £2 of income above £100,000. It is fully withdrawn at £125,140, creating an effective 60% tax rate on income between £100,000 and £125,140.
Savings & Dividend Rates
| Type | Allowance / Rate |
|---|---|
| Personal Savings Allowance — Basic rate taxpayer | £1,000 tax-free |
| Personal Savings Allowance — Higher rate taxpayer | £500 tax-free |
| Dividend Allowance | £500 tax-free |
| Dividend — Basic rate | 8.75% |
| Dividend — Higher rate | 33.75% |
| Dividend — Additional rate | 39.35% |
Other Key Allowances
| Allowance | Amount |
|---|---|
| ISA allowance | £20,000 |
| Annual pension allowance | £60,000 |
| Marriage allowance | £1,260 transferable |
| Inheritance Tax nil-rate band | £325,000 (frozen to April 2031) |
03
National Insurance Contributions
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Employees (Class 1)
| Earnings | Employee Rate | Notes |
|---|---|---|
| Up to £6,708/yr (£129/week) | 0% | Below Lower Earnings Limit — no credits |
| £6,708 – £12,570/yr | 0% | NI credits accrued — no payment due |
| £12,570 – £50,270/yr | 8% | Primary Threshold to Upper Earnings Limit |
| Over £50,270/yr | 2% | Above Upper Earnings Limit |
Employers (Class 1)
| Earnings | Employer Rate |
|---|---|
| Up to £5,000/yr (Secondary Threshold) | 0% |
| Above £5,000/yr | 15% |
Employment Allowance
Eligible employers can reduce their employer NI bill by up to £10,500 per year. This cannot be used against the director's own NI if they are the sole employee.
Self-Employed (Class 4)
| Profit Band | Rate |
|---|---|
| Up to £12,570 | 0% |
| £12,570 – £50,270 | 6% |
| Over £50,270 | 2% |
Class 2 NI — Abolished
Compulsory Class 2 NICs were abolished from 6 April 2024. Self-employed individuals with profits above £12,570 are treated as having made contributions, maintaining State Pension entitlement without payment.
04
VAT Rates, Thresholds & Schemes
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| Rate | Applies To |
|---|---|
| Standard — 20% | Most goods and services |
| Reduced — 5% | Domestic energy, children's car seats, some renovations |
| Zero — 0% | Food, children's clothing, books, new residential builds |
| Exempt | Financial services, insurance, education, health |
Key Thresholds
| Threshold | Amount |
|---|---|
| Registration threshold | £90,000 taxable turnover in 12 months |
| Deregistration threshold | £88,000 |
VAT Accounting Schemes
| Scheme | Eligibility | Benefit |
|---|---|---|
| Flat Rate | Turnover up to £150,000 | Pay a fixed % of gross turnover |
| Cash Accounting | Turnover up to £1.35m | VAT due when payment received |
| Annual Accounting | Turnover up to £1.35m | One return per year; monthly instalments |
05
Capital Gains Tax & Reliefs
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| Asset Type | Basic Rate Taxpayer | Higher Rate Taxpayer |
|---|---|---|
| Most assets | 18% | 24% |
| Residential property | 18% | 24% |
| Business assets (BADR) | 18% | |
| Allowance / Relief | Amount / Detail |
|---|---|
| Annual Exempt Amount | £3,000 |
| Business Asset Disposal Relief (BADR) | 18% on first £1m lifetime gains (qualifying disposals) |
| Investors' Relief | 18% on qualifying gains up to £1m lifetime limit |
| Rollover Relief | Defer CGT on business asset replacement |
| Gift Relief | Defer CGT on gifted business assets |
Reporting Requirement
UK residential property gains must be reported and the tax paid within 60 days of completion. All other gains are reported via Self Assessment.
06
Key Filing Deadlines & Penalties
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Self Assessment
- 31 July 2026Second payment on account for 2025/26 Self Assessment
- 5 October 2026Register for Self Assessment if newly self-employed in 2025/26
- 31 October 2026Paper Self Assessment return deadline for 2025/26
- 31 January 2027Online Self Assessment return & balancing payment for 2025/26; first payment on account for 2026/27
Corporation Tax
- 9 months + 1 dayAfter accounting period end — CT payment due (small companies)
- 12 monthsAfter accounting period end — CT600 return due
VAT
- Monthly / QuarterlyVAT returns due 1 month and 7 days after period end
Late Filing Penalties — Self Assessment
| How Late | Penalty |
|---|---|
| Up to 3 months late | £100 fixed penalty |
| 3–6 months late | £10/day (up to £900) |
| 6–12 months late | Further £300 or 5% of tax (whichever higher) |
| Over 12 months | Further £300 or 5% of tax (whichever higher) |
07
Payroll, PAYE & Employer Obligations
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National Living & Minimum Wage (from 1 April 2026)
| Age Group | Hourly Rate |
|---|---|
| 21 and over (National Living Wage) | £12.71 |
| 18–20 | £10.85 |
| Under 18 / Apprentice | £8.00 |
PAYE Key Figures
| Item | 2026/27 |
|---|---|
| Tax-free personal allowance | £12,570 |
| Primary threshold (employee NI starts) | £12,570/yr (£242/week) |
| Secondary threshold (employer NI starts) | £5,000/yr (£96/week) |
| Upper earnings limit | £50,270/yr (£967/week) |
| Statutory Sick Pay (SSP) | £123.25/week |
| Statutory Maternity Pay — first 6 weeks | 90% of average weekly earnings |
| Statutory Maternity Pay — remaining 33 weeks | £194.32/week or 90% AWE (lower) |
Important SSP Change — April 2026
Statutory Sick Pay is now payable from the first day of sickness absence. The previous three waiting days before SSP became payable have been abolished under the Employment Rights Act 2025. All eligible employees are entitled to SSP from day one of illness. This is a significant change for employers and may increase the cost of short-term sickness absence — review your absence policies accordingly.
Optimal Director Salary 2026/27
For most directors, a salary of £12,570 (Personal Allowance) produces the best overall tax outcome. Although it generates an employer NI liability, the Corporation Tax deduction on the higher salary largely offsets this cost — meaning £12,570 typically wins on pure numbers, with only a touch more admin. A salary of £9,100 (Secondary Threshold) remains an option where simplicity is preferred or Employment Allowance is not available, but the tax saving is generally marginally lower. As always, the right answer depends on your individual circumstances — give us a call and we'll confirm the most tax-efficient approach for you.
08
Allowable Expenses & Deductions
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Business expenses must be incurred "wholly and exclusively" for business purposes to be deductible. Below are the most common categories.
| Category | What Qualifies |
|---|---|
| Staff costs | Wages, salaries, employer NI, pension contributions, staff training |
| Office & premises | Rent, rates, utilities, insurance, cleaning, repairs |
| Travel & vehicles | Business mileage (45p/mile first 10,000; 25p thereafter), train, parking, hotel on business trips |
| Equipment & technology | Computers, phones, software subscriptions (may qualify for AIA) |
| Professional fees | Accountancy, legal, bank charges |
| Marketing | Advertising, website, social media, printed materials |
| Stock & materials | Raw materials, stock purchased for resale |
| Working from home | The £6/week employee flat-rate tax relief was abolished from 6 April 2026. Sole traders may still apportion actual home costs. Limited companies can reimburse directors/employees for home working costs tax-free where conditions are met, but individuals can no longer make a personal claim via Self Assessment. |
Common Mistakes
Client entertainment is not allowable (staff entertainment up to £150/head per year is). Personal expenditure mixed with business — always keep receipts and clear records. Fines and penalties are never deductible.
09
Making Tax Digital Compliance
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Making Tax Digital (MTD) is HMRC's programme to digitalise the UK tax system. Compliance requirements vary by business type and income level.
MTD for VAT
All VAT-registered businesses are required to file VAT returns using MTD-compatible software. This has been mandatory since April 2022 for all VAT-registered businesses regardless of turnover.
MTD for Income Tax (MTD ITSA)
| Income Level | Mandatory From |
|---|---|
| Over £50,000 (sole traders & landlords) | 6 April 2026 ✓ Now applies |
| Over £30,000 | April 2027 |
| Over £20,000 | April 2028 |
Important — From 6 April 2026
If you are a sole trader or landlord with income over £50,000, you are now required to keep digital records and submit quarterly updates to HMRC via MTD-compatible software. Annual Self Assessment is replaced by quarterly submissions plus a final declaration. Contact us immediately if you are unsure whether this applies to you.
What MTD ITSA Requires
| Requirement | Detail |
|---|---|
| Digital records | Income and expenses recorded digitally in real time using approved software |
| Quarterly updates | Summary of income and expenses submitted to HMRC every quarter |
| Final declaration | Annual finalisation replacing the Self Assessment return, submitted by 31 January |
| Compatible software | HMRC-approved software required — we can advise on the right solution for your business |
MTD for Corporation Tax
MTD for Corporation Tax is being piloted but is not yet mandatory. A launch date has not been confirmed. We will communicate any changes in good time.
Already MTD Ready? We Can Help — And Save You the Software Cost
Dominic & Co are fully MTD-authorised and set up to file on your behalf using bridging software — which means you may not need to purchase or manage your own MTD-compatible software at all. If the new rules already apply to you, or will do soon, please don't leave it to the last minute. Get in touch with us as soon as possible and we'll get you set up quickly, compliantly, and with minimum fuss.