Rates, Allowances, Deadlines & Compliance — Simply Explained
What's covered inside
Why this guide exists
Stop guessing.
Start knowing.
Most business owners make costly tax decisions not out of carelessness — but because the rules are buried in jargon. This guide cuts through the complexity and puts the numbers that matter in one place, in plain English.
Corporation Tax (CT) is charged on the taxable profits of UK limited companies and some other organisations. The rate you pay depends on your level of profits — and whether you have associated companies. The structure below applies to accounting periods ending on or after 1 April 2026.
A company with £100,000 taxable profit (no associated companies) calculates its CT liability as follows:
Effective rate: 22.75%. Use HMRC's free Marginal Relief calculator at gov.uk to check your own position.
If you control multiple companies, the £50,000 and £250,000 limits are divided equally across all associated companies — dramatically narrowing the marginal relief band.
| No. of companies | Lower limit | Upper limit |
|---|---|---|
| 1 | £50,000 | £250,000 |
| 2 | £25,000 | £125,000 |
| 3 | £16,667 | £83,333 |
| 5 | £10,000 | £50,000 |
An associated company is any company under common control — regardless of whether it trades or is profitable.
Income tax affects every business owner personally — whether you pay yourself a salary, draw dividends, or both. Understanding the bands, allowances, and the interaction between income types is essential for tax-efficient remuneration planning. All figures below apply to England, Wales & Northern Ireland for the 2026/27 tax year.
Dividends remain the most common way directors extract profit. The basic and higher rates increased by 2% from 6 April 2026.
| Band | 2025/26 | 2026/27 | Per £1,000 |
|---|---|---|---|
| Within allowance | 0% | 0% | £0 |
| Basic rate | 8.75% | 10.75% | £107.50 |
| Higher rate | 33.75% | 35.75% | £357.50 |
| Additional rate | 39.35% | 39.35% | £393.50 |
The Dividend Allowance remains £500 for 2026/27. Dividends are always treated as the top slice of income, taxed after salary and other earnings. They do not attract National Insurance.
Director pays themselves a £12,570 salary and £30,000 in dividends. Total income: £42,570.
Effective rate on total income: 7.45%. Under the 2025/26 rate of 8.75%, tax would have been £2,581.25 — a difference of £590 more in 2026/27.
National Insurance (NI) is one of the most significant — and most misunderstood — costs for business owners. It affects you differently depending on whether you pay yourself a salary, employ staff, or operate as self-employed. The rates and thresholds below are confirmed for the 2026/27 tax year (6 April 2026 to 5 April 2027).
One employee on a £30,000 annual salary. Total employment cost to the business:
Each additional employee on £30k adds £3,750 in employer NI before any allowance offset. For a team of five, that's £18,750 — before Employment Allowance reduces it by £10,500.
Eligible employers can reduce their annual employer NI bill by up to £10,500. Key rules:
Must be claimed through payroll software each tax year — it is not automatic. Confirm eligibility with your accountant, especially if the business is growing and approaching the £100,000 pay bill threshold.
Value Added Tax (VAT) is charged on most goods and services sold by VAT-registered businesses in the UK. Whether you are approaching the registration threshold for the first time, choosing between accounting schemes, or reviewing your existing position, getting VAT right is essential — errors are costly and HMRC penalties for late registration are backdated to when you first should have registered.
Capital Gains Tax (CGT) is charged on the profit when you dispose of a chargeable asset — whether that is shares, investment property, or a business. The 2026/27 tax year brings significant change: BADR rises to 18%, the annual exemption remains at a historic low of £3,000, and main rates are now fully aligned with residential property rates. Proactive planning has never mattered more.
BADR (formerly Entrepreneurs' Relief) reduces CGT on qualifying business disposals. The rate has tripled since 2024/25.
Lifetime limit: £1,000,000 of qualifying gains. To qualify:
With BADR now at 18% and the standard higher rate also 24%, the saving has narrowed considerably. For a £1m qualifying gain, BADR saves £60,000 — versus £140,000 it would have saved at the original 10% rate.
Higher rate taxpayer sells their qualifying limited company. Total proceeds: £1,200,000. Original cost basis: £50,000.
The same sale in 2024/25 (BADR at 10%, main rate 24%) would have cost £135,280 — a difference of £80,000 more in 2026/27. This illustrates the real cost of the rate increases to business owners planning an exit.
Missing a tax deadline costs money — automatically, without warning, and often regardless of whether you owe any tax. HMRC collected over £220 million in late filing penalties in a single year. This chapter maps every deadline a business owner needs to track, explains how penalties escalate, and flags the changes taking effect in 2026/27 that make late filing significantly more expensive.
Late payment interest runs separately at 8.00% per annum (Bank of England base rate + 4%) from the day after the payment deadline until the debt is cleared.
VAT late submissions now trigger a points-based system rather than an immediate fine. Points accumulate with each late return — a financial penalty only triggers once the threshold is crossed.
For quarterly filers, the penalty threshold is 4 points (4 late submissions). Every subsequent late return adds another £200 penalty. Points expire after 12 consecutive months of on-time filing.
VAT late payment penalties are separate and stricter:
The moment you take on an employee — or pay yourself a salary as a director — you become an employer with a set of recurring legal obligations to HMRC. Payroll errors are among the most common compliance failures for small businesses, and the penalties are automatic. This chapter covers every rate, obligation, and deadline you need to stay on top of for 2026/27, including the significant new SSP rules effective from 6 April 2026.
New from 6 April 2026: SSP is now payable from day one of sickness — the previous 3 waiting days are abolished under the Employment Rights Act 2025. Every absence of one or more complete days now triggers an SSP obligation immediately.
HMRC must receive PAYE and NI payments on time each month. Electronic payments give you three extra days.
The first late submission in a new PAYE scheme is forgiven. All subsequent late FPS filings attract the penalty above — automatically, with no prior warning from HMRC.
Claiming every allowable expense is not tax avoidance — it is your legal right. Unclaimed expenses mean you pay more tax than you owe. This chapter maps what HMRC permits, what it does not, and covers the capital allowance changes coming into effect in April 2026 that will affect how businesses claim relief on plant and machinery purchases.
Rates unchanged for over 13 years. If you use the mileage rate method, you cannot also claim capital allowances on the same vehicle. Choose one method and apply it consistently. A mileage log is essential — HMRC requires date, destination, purpose, and miles for every journey claimed.
Sole traders and partners can use HMRC's simplified flat rates instead of calculating actual costs:
Limited company directors cannot use the flat rate but can instead receive a tax-free £6/week (£312/year) from their company under HMRC's homeworking allowance — or claim actual additional household costs under a formal home office licence agreement with the company.
Making Tax Digital (MTD) is HMRC's programme to replace paper records and annual tax filing with mandatory digital record-keeping and quarterly reporting. MTD for VAT is already live for all VAT-registered businesses. From 6 April 2026, MTD for Income Tax Self Assessment (MTD for ITSA) becomes mandatory for the first wave of sole traders and landlords — and the threshold drops again in 2027 and 2028. This is the single biggest change to UK tax administration in a generation.
Updates are due the 7th of the month following the end of each quarter. The figures submitted are cumulative year-to-date totals, not just the quarter in isolation.
The Final Declaration is due 31 January 2028 for the 2026/27 tax year — the same date as the current SA filing deadline. Payment dates are also unchanged.
The threshold is based on gross qualifying income — before any expenses — as reported on the 2024/25 Self Assessment return (the return due 31 January 2026).
Example: A sole trader with £29,000 trade income and £22,000 gross rents has £51,000 qualifying income — above the £50,000 threshold — and must comply from 6 April 2026, even though neither income source alone exceeds the limit.