Tax Glossary

Common terms used in UK Limited Company taxation.

Corporation Tax (CT)

The tax a limited company pays on its annual profits. For 2025/26, the rate is 19% for profits under £50,000, rising to 25% for profits over £250,000.

Dividend Allowance

A tax-free allowance for dividend income. For the 2025/26 tax year, this is £500. Dividends above this amount are taxed at 8.75% (Basic), 33.75% (Higher), or 39.35% (Additional).

Employment Allowance (EA)

A scheme that allows eligible employers to reduce their annual National Insurance liability by up to £10,500. Sole director companies with no other employees are not eligible.

Marginal Relief

A mechanism that gradually increases the Corporation Tax rate from 19% to 25% for profits falling between £50,000 and £250,000. The effective marginal tax rate on this slice of profit is 26.5%.

National Insurance (NIC)

• Class 1 Primary: Paid by employees on salary above £12,570.
• Class 1 Secondary: Paid by employers on salary above £5,000 (2025/26).
• Class 1A: Paid by employers on benefits in kind.

Personal Allowance

The amount of income you can earn tax-free each year. For 2025/26, the standard code (1257L) gives an allowance of £12,570. It tapers away for income over £100,000.

IR35 (Off-Payroll Working)

Legislation design to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.