Running a limited company, worked out in order
A limited company changes how you’re taxed and how you pay yourself. This guide runs the six calculations a director needs — from whether to incorporate at all to extracting profit tax-efficiently.
Your company made £80,000 profit. How much reaches you?
After CT
dividends are paid
£500
dividend allowance
No NI
on dividends
A limited company is a separate legal entity — its money isn’t yours until you extract it, and how you do that decides your tax bill. Pay yourself the wrong way and you hand over more than you needed; vote dividends the company can’t cover and you’ve broken company law. Each calculator below settles one decision — run them in order to see what genuinely reaches your pocket.
The director’s path, step by step
Six calculations in the order a director faces them — decide on the structure, work out the profit, then extract it as efficiently as the rules allow.
Sole trader or limited company?
Below roughly £30,000–£40,000 profit, a limited company’s extra admin and accountancy often outweigh the tax saving. Above it, the salary-and-dividend split usually wins, plus you gain limited liability and credibility. Settle this before registering anything.
Sole Trader vs Ltd Calculator →How much profit is left after Corporation Tax?
Dividends can only come from profit after Corporation Tax, so this is the pot you’re actually working with. Knowing post-tax profit stops you voting dividends the company can’t legally cover — an illegal dividend you may have to repay. Work out what’s distributable.
Limited Company Profit Calculator →What’s the best salary vs dividend split?
The classic move is a small salary up to the £12,570 personal allowance, then dividends — because dividends carry no National Insurance. But the dividend allowance is just £500 now, and rates have risen, so the optimal split is worth calculating, not assuming.
Salary vs Dividend Calculator →Are you using a director’s loan?
Taking money beyond salary and dividends creates a director’s loan. Leave it unpaid nine months after year-end and the company faces a temporary tax charge (s455); large overdrawn loans can also trigger a benefit-in-kind. Useful short-term, costly if mismanaged — know the rules.
Director’s Loan Calculator →How much can the company put into your pension?
Employer pension contributions are usually an allowable expense, cutting Corporation Tax while reaching you free of Income Tax, NI and dividend tax. With the annual allowance at £60,000 for most, it’s often the single most efficient way to take money out. See what’s possible.
Director Pension Calculator →Would the Flat Rate Scheme save you money?
If your company is VAT-registered with relatively low costs, the Flat Rate Scheme (open under £150,000 turnover) can simplify VAT and sometimes leave a small surplus. For high-cost businesses, standard VAT usually wins. Compare before you choose a scheme.
Flat Rate VAT Calculator →Why the order matters
The structure question comes first because everything else assumes you’ve incorporated — there’s no point optimising a salary-dividend split if a sole trader setup would actually leave you better off at your profit level.
Profit comes before the salary-dividend split for a hard legal reason: dividends can only be paid from post-Corporation-Tax profit. Work out the distributable figure first, or you risk voting an illegal dividend the company can’t cover. Pension and VAT then refine an already-sound structure rather than define it.
Dividend tax rates a director pays
Most directors take the bulk of their income as dividends, so these rates drive the salary-vs-dividend decision. Dividends stack on top of salary in the tax order.
| Band (total income) | Dividend tax rate |
|---|---|
| First £500 (dividend allowance) | 0% |
| Basic rate (up to £50,270) | 10.75% |
| Higher rate (£50,271–£125,140) | 35.75% |
| Additional rate (over £125,140) | 39.35% |
The advantage holds — dividends carry no National Insurance, so a small salary plus dividends usually beats a large salary. But with the allowance at just £500 and rates having risen, the optimal split is narrower than it once was. Model it with the salary vs dividend calculator.
Ready to run your own numbers?
Begin with sole trader vs limited company — the decision everything else builds on — then work down the path one calculator at a time.
A director’s path, worked through
One realistic example, run through the whole sequence, to show how the steps connect in practice.
- Structure. At £90,000 profit, a limited company clearly beats sole trader, so Dev runs through a company.
- Profit after CT. Corporation Tax comes off first, leaving the distributable profit — the only pot dividends can legally come from.
- Salary vs dividend. Dev takes a small salary to the £12,570 allowance, then dividends — no NI on dividends, though only £500 is tax-free.
- Director’s loan. Mid-year he borrowed from the company; he repays it within 9 months of year-end to avoid the s455 charge.
- Pension. He makes a large employer pension contribution, cutting Corporation Tax and extracting value free of Income Tax, NI and dividend tax — his most efficient move.
The takeaway: a director who votes dividends before checking post-CT profit risks an illegal dividend. Working out distributable profit first kept Dev legal, and the pension step at the end did more for his position than fine-tuning the salary-dividend split.
Five mistakes company directors make
The errors that recur among UK company directors — and the ones that cost the most.
Voting dividends without checking distributable profit
Dividends can only come from profit after Corporation Tax. Pay more than the company has and it’s an illegal dividend HMRC can reclassify — sometimes as salary or a loan, with extra tax.
Cost: reclassified income, more tax Fix: draw only from post-CT profitLeaving a director’s loan unpaid past 9 months
An overdrawn director’s loan still owed 9 months after year-end triggers the s455 charge, and a large loan can create a benefit-in-kind. Useful short-term, costly if forgotten.
Cost: the s455 tax charge Fix: clear loans within 9 monthsOver-focusing on salary vs dividend, ignoring pension
The salary-dividend split matters, but employer pension contributions are often the single most efficient extraction — allowable against Corporation Tax and free of personal tax. Many directors overlook it.
Cost: needless tax on profit Fix: use the pension leverIncorporating too early
Below roughly £30,000–£40,000 profit, a company’s extra admin and accountancy often outweigh the tax saving. Incorporating purely for prestige at low profit can cost more than it saves.
Cost: admin costs exceeding savings Fix: incorporate when profit justifies itAssuming the Flat Rate VAT Scheme always wins
For a low-cost business it can suit; for one with significant VAT on purchases, standard VAT (reclaiming input VAT) usually wins. Don’t opt in without comparing.
Cost: paying more VAT than needed Fix: compare flat rate vs standardLimited company tax questions, answered
When is a limited company worth it over sole trader?
How do I pay myself from a limited company?
What is a director’s loan and when is it taxed?
Can my company pay into my pension?
What is an illegal dividend?
Should I use the VAT Flat Rate Scheme?
How much Corporation Tax will my company pay?
Other Calclens guides & tools
How this guide is built
The sequence follows the order a director faces these decisions — whether to incorporate, what the company keeps after tax, then how to extract it — the order a small-company accountant would work through.
Every calculator linked here is a free Calclens tool with its own methodology. Dividend rates, Corporation Tax, the director’s loan rules, pension limits and VAT schemes follow current HMRC and GOV.UK guidance; the individual calculator pages carry the detailed figures and sources.
Definitions and sources: methodology · sources.
Not tax or financial advice. This guide is for general information and links to calculators that produce estimates. Company tax depends on your circumstances — confirm figures with a qualified accountant before acting.