How much tax will I actually pay? (founder's rough guide)
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- 1.How much tax will I actually pay? (founder's rough guide)
- 2.Self Assessment for the terrified: a step-by-step
A plain-English, reassuring overview of the taxes a small UK limited company and its founder actually meet — Corporation Tax, dividend tax, income tax and National Insurance — with rough ranges. Confirm current rates with HMRC.
Note: Every rate, band and threshold below changes regularly, and your real bill depends on your specific situation. Treat this as a rough map, not a calculator — confirm current figures with HMRC or an accountant before making decisions.
The honest answer first
When founders ask "how much tax will I actually pay?", what they usually mean is: am I about to be hit by something huge I haven't planned for?
The reassuring answer is no — not if you understand the few taxes that apply and set a little aside as you go. There's no single mystery percentage that swallows your business. Instead there are a handful of separate taxes, each with its own logic, and once you can name them they stop being scary.
This is a rough guide on purpose. The exact rates and bands shift most years, and your real number depends on how you pay yourself, what you spend, and how much you earn elsewhere. So we'll deal in ranges and ideas, not promises. Think of it as a map of the territory, not a quote.
Tax on the company's profit: Corporation Tax
If you run a limited company, the company itself is a separate legal "person" — and it pays tax on its profit, not on everything that lands in the bank.
Profit means what's left after your allowable business costs come out: your sales, minus the legitimate expenses of earning them. That's the number Corporation Tax is charged on.
As a rough orientation, the UK Corporation Tax rate sits broadly in the 19–25% range, with smaller companies paying at the lower end and larger profits at the higher end (there's a sliding scale in between). Confirm the current rate and profit thresholds with HMRC, because these are exactly the figures that move.
The key reassurance: you're taxed on profit, not turnover. Spend £40,000 earning £100,000 and you're taxed on the £60,000, not the £100,000. So the costs of genuinely running your business reduce the bill. (See: What can I claim as a business expense?)
Tax on the money you take out: dividends and salary
Here's where founders get confused. Your company paying Corporation Tax is one thing. You getting paid out of the company is a separate thing, with its own tax.
Most director-owners pay themselves with a mix of two things:
A small salary. Run through PAYE like any employee. Kept modest, it's tax-efficient and can count toward your state pension, while National Insurance (NIC) kicks in above certain thresholds.
Dividends. A share of the company's profits paid to you as a shareholder. Dividends have their own tax rates, which are lower than normal income tax rates — but they're paid out of money the company has already paid Corporation Tax on. There's usually a small tax-free dividend allowance, then the rate steps up through bands roughly tracking your overall income.
The plain-English takeaway: money you take out of the company gets taxed again in your hands, on top of the Corporation Tax the company already paid. That sounds harsh, but the dividend rates are set lower partly to account for it. The salary-plus-dividends mix is why most small companies pay an accountant for an hour a year — to find the efficient split for your numbers.
If you're a sole trader instead: income tax and NIC
Not everyone reading this is a limited company. If you're a sole trader, the picture is simpler and the words are different.
You and the business are the same person in law, so there's no Corporation Tax and no dividends. Instead you pay income tax on your profit, plus National Insurance, all through Self Assessment.
Income tax works in bands: a tax-free personal allowance first, then a basic rate, then higher rates as your profit climbs. National Insurance adds another slice above its own threshold. As a very rough mental model, a sole trader on a modest profit is often looking at a combined effective rate well below the headline band — because the first chunk of profit is tax-free, and only the top slice is taxed at the higher rates. Confirm the current allowance and band figures with HMRC.
The reassuring part: bands mean you're never taxed at the top rate on all your income — only on the portion above each threshold. Earning into a higher band doesn't claw back what you earned in the lower ones.
VAT: the tax that isn't really yours
VAT feels like a tax on you, but for most businesses it's really a pass-through — you're collecting it on HMRC's behalf, not paying it out of your own pocket.
Once you're VAT-registered, you add VAT to your prices, collect it from customers, reclaim the VAT on your own purchases, and hand the difference to HMRC each quarter. The money was never yours to keep. The danger isn't the rate — it's forgetting that the VAT sitting in your bank account belongs to HMRC and spending it. Keep it mentally (or actually) separate and VAT stops being frightening.
You only deal with VAT once your taxable turnover crosses the registration threshold (confirm the current figure with HMRC) or you choose to register early.
A rough worked-ish example
Let's make it concrete — roughly, with round numbers, and with every rate flagged as "confirm current."
Say your limited company earns £100,000 and spends £40,000 on genuine business costs. Profit is £60,000. Corporation Tax (at a rough small-company rate) might take somewhere in the region of £11,000–£12,000, leaving roughly £48,000 in the company.
You then pay yourself a small salary plus dividends out of that. Depending on the split and your other income, the personal tax and NIC on what you take out might land somewhere in the single-digit to mid-teens thousands, leaving you with the rest.
Don't hold those figures to the pound — that's not the point. The point is the shape: profit is taxed once in the company, then again (more gently) when you take it out, and the leftover is yours. A good accountant shaves the edges; this guide just shows you the staircase.
Why knowing your rough number matters
The founders who get caught out aren't the ones who do precise maths — they're the ones who do no maths and treat the whole bank balance as theirs to spend.
If you know, even roughly, that a chunk of every pound of profit is owed in tax, you set it aside as you go. Then deadline day is a transfer, not a heart attack. A simple habit — moving a rough percentage of each month's profit into a separate "tax" pot — turns the scariest part of running a business into a non-event.
It also matters the moment you plan anything: hiring, raising, taking a bigger dividend. Each of those has a tax shadow, and a founder who can do the rough sum in their head makes calmer, better decisions than one who's hoping for the best.
The short version
A small limited company meets a short list of taxes: Corporation Tax on its profit (roughly 19–25%), then dividend and salary tax when you take money out, with VAT passing through if you're registered. A sole trader skips the first two and pays income tax and National Insurance on profit instead. None of it is a single giant number — it's a handful of named, predictable slices. Set money aside as you earn, confirm the current rates with HMRC, and the bill stops being scary.
Ready to stop guessing? In Ledgers, your profit updates automatically from your bank feed, so you can see roughly what you owe as the year goes — no spreadsheet, no surprises. See your numbers without learning accounting → start free.
Want the exact deadlines for paying it? The UK small business tax calendar →
Start with the basics: What is Corporation Tax and when do I pay it? →
Frequently asked questions
How much tax does a limited company pay in the UK?
The company pays Corporation Tax on its profit, broadly in the 19–25% range depending on profit level (confirm the current rate with HMRC). On top of that, you personally pay tax when you take money out as salary or dividends. So there are two layers, not one.
Do I pay tax on turnover or profit?
Profit. Your allowable business costs come off first, and tax is charged on what's left. Turnover (total sales) is not what you're taxed on.
Is it better to take salary or dividends?
Most director-owners use a mix: a small salary plus dividends, because dividend tax rates are lower than income tax rates. The most efficient split depends on your numbers — it's the one thing genuinely worth an accountant's hour.
Is VAT a cost to my business?
For most businesses, no — it's a pass-through. You collect it from customers, reclaim it on purchases, and hand the difference to HMRC. The risk is spending VAT that was never really yours.
See your numbers without learning accounting
Ledgers does the bookkeeping — bank feeds, VAT, year-end — and keeps your accountant in the loop. Free for pre-revenue founders.
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