UK Business Tax Rates 2026/27: Complete Guide
Which taxes actually apply to your business depends heavily on how it’s structured, and the rates themselves change often enough that even experienced owners lose track. Whether you’re a sole trader paying Income Tax or a limited company director juggling Corporation Tax and dividends, getting the rates right matters for budgeting and for avoiding an unwelcome surprise at filing time.
This guide sets out the UK business tax rates that apply for the 2026/27 tax year — Corporation Tax, Income Tax, dividend tax, National Insurance, and VAT — with plain explanations of how each one actually works and who it applies to.
Rates and thresholds are correct as of the 2026/27 tax year (6 April 2026 to 5 April 2027) and are reviewed regularly, since UK tax rules can change between Budgets.
Quick Answer
For 2026/27, UK Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between. Sole traders pay Income Tax at 20%, 40% or 45% depending on earnings, plus Class 4 National Insurance. Dividend tax rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional), with a £500 tax-free allowance. VAT is 20%, with registration required once turnover passes £90,000.
Key Takeaways
- Corporation Tax has two main rates for 2026/27: 19% (small profits) and 25% (main rate), with marginal relief between £50,000 and £250,000 profit
- Sole traders pay Income Tax (20%/40%/45%) plus Class 4 National Insurance on business profits
- Dividend tax rates rose for 2026/27: 10.75% basic, 35.75% higher, 39.35% additional, with a £500 allowance
- The VAT registration threshold is £90,000 in rolling 12-month turnover
- Corporation Tax late filing penalties doubled from April 2026, making on-time filing more important than ever
On this page: Corporation Tax Rates | Income Tax for Sole Traders | Dividend Tax Rates | National Insurance | VAT Rates & Threshold | Sole Trader vs Limited Company Tax | Illustrative Examples | Common Mistakes | Editor’s Insights | Comparison Table | Checklists | FAQ | Sources
Corporation Tax Rates 2026/27
UK Corporation Tax for 2026/27 is charged at 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief tapering the rate for profits in between.
- Small Profits Rate: 19% — applies to companies with annual profits of £50,000 or less
- Main Rate: 25% — applies to companies with annual profits over £250,000
- Marginal Relief — for profits between £50,000 and £250,000, a tapered rate applies, gradually increasing from 19% toward 25% as profits rise within the band
These thresholds are reduced if your company has associated companies — for example, two associated companies would halve both the £50,000 and £250,000 thresholds. Corporation Tax is payable 9 months and 1 day after your company’s year end, and returns must be filed via a CT600.
Filing penalties also matter more than before: from 1 April 2026, HMRC doubled its fixed penalties for late Corporation Tax returns — £200 for filing one day late (up from £100), rising to £400 if still not filed after 3 months, and up to £1,000–£2,000 per return for businesses that file late in three consecutive years, regardless of whether any tax is actually owed.
Editor’s Insight: If your company’s profits sit close to £50,000 or £250,000, timing income and allowable expenses carefully around your year end can genuinely affect which band you fall into. It’s worth reviewing with an accountant if you’re near either threshold.
Income Tax Rates for Sole Traders 2026/27
Sole traders pay Income Tax on business profits at 20%, 40% or 45%, depending on total taxable income, on top of the tax-free Personal Allowance.
- Personal Allowance: £12,570 — the amount you can earn before Income Tax applies, frozen at this level for 2026/27
- Basic Rate: 20% — on income between £12,570 and £50,270
- Higher Rate: 40% — on income between £50,270 and £125,140
- Additional Rate: 45% — on income above £125,140
Because the Personal Allowance has been frozen rather than rising with inflation, more sole traders are gradually being pulled into higher tax bands as their profits grow — sometimes called “fiscal drag.” It’s worth reviewing your expected profits against these bands each year rather than assuming last year’s tax position still applies.
Editor’s Insight: The frozen Personal Allowance means a modest pay rise or profit increase can push more of your income into a higher band than you’d expect. Reviewing your position mid-year, not just at filing time, helps avoid an unexpectedly large tax bill.
Dividend Tax Rates 2026/27
Dividend tax rates for 2026/27 are 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate), with the first £500 of dividend income tax-free.
This is the first change to dividend tax rates since 2022 — both the basic and higher rates increased for 2026/27 (up from 8.75% and 33.75% respectively), while the additional rate and the £500 allowance remain unchanged. For limited company directors who take a mix of salary and dividends, this rate increase makes it worth reviewing whether your current salary/dividend split is still the most tax-efficient approach, since strategies set a few years ago may no longer reflect the current rates.
Editor’s Insight: If you haven’t reviewed your salary and dividend split since before this rate change, it’s worth revisiting with an accountant. A structure that was efficient under the old rates may no longer be the best approach now.
National Insurance for Businesses
National Insurance contributions differ depending on whether you’re employed, self-employed, or running a limited company, and apply on top of Income Tax or Corporation Tax.
- Employees pay Class 1 National Insurance, currently 8% on qualifying earnings within the standard band
- Self-employed sole traders pay Class 4 National Insurance on business profits, calculated on top of Income Tax rather than instead of it
- Employers pay separate employer National Insurance contributions on staff salaries, which is a genuine business cost to budget for when hiring
A common surprise for first-time sole traders is realising Class 4 National Insurance is charged in addition to Income Tax, not as an alternative to it — the combined effect can push your total tax and NI bill meaningfully higher than Income Tax alone would suggest.
Editor’s Insight: Budget for Income Tax and Class 4 National Insurance together, not separately, when setting aside money for your tax bill as a sole trader. Treating them as one combined percentage of profit avoids an unpleasant surprise at Self Assessment time.
VAT Rates and Registration Threshold
The standard UK VAT rate is 20%, and businesses must register for VAT once taxable turnover exceeds £90,000 in any rolling 12-month period.
Some goods and services qualify for a reduced VAT rate or are zero-rated, though most standard business activity falls under the 20% rate. Registration isn’t limited to businesses that have already crossed the threshold — you can register voluntarily below £90,000, which some businesses do specifically to reclaim VAT on start-up costs.
Editor’s Insight: The VAT threshold is measured on a rolling 12-month basis, not your accounting year — check your total turnover monthly if you’re anywhere close to £90,000, rather than only reviewing it at year-end.
Sole Trader vs Limited Company: Which Pays Less Tax?
Whether a sole trader or limited company structure pays less tax depends heavily on profit level, since the two are taxed in genuinely different ways.
At lower profit levels, sole trader status is often simpler and can be broadly comparable in tax terms. As profits grow, limited companies often become more tax-efficient, since Corporation Tax rates (19–25%) combined with a carefully structured salary and dividend split can result in a lower overall tax bill than Income Tax and Class 4 NI on the same profit as a sole trader. However, this isn’t automatic — the exact crossover point depends on your specific profit level, the current dividend tax rates, and how much you need to draw from the business personally.
Editor’s Insight: There’s no single profit level at which everyone should switch to a limited company — it depends on your personal drawing needs and current rates. Model both scenarios with an accountant before deciding, rather than relying on a generic rule of thumb.
Illustrative Examples
Real-World Scenario — Sole trader nearing the higher rate band: A sole trader with £48,000 in profits realises a strong final quarter will push them past the £50,270 higher rate threshold. By bringing forward a planned equipment purchase before their tax year ends, they legitimately reduce taxable profit and stay within the basic rate band for that year.
Real-World Scenario — Limited company reviewing its dividend split: A single-director limited company that set its salary/dividend split in 2022 reviews it again after the 2026/27 dividend rate increase, working with an accountant to check whether the same split is still the most tax-efficient given the higher basic and higher dividend rates now in place.
Illustrative Example — Company profits near the Corporation Tax threshold: A small consultancy with profits hovering around £52,000 works with its accountant to time a planned investment before year end, bringing profits back under £50,000 to benefit from the Small Profits Rate rather than falling into the marginal relief band.
Common Mistakes
- Forgetting Class 4 National Insurance applies on top of Income Tax — sole traders sometimes budget only for Income Tax, then are surprised by a larger-than-expected combined bill.
- Not reviewing salary/dividend splits after a rate change — a structure that was efficient two or three years ago may no longer be optimal once dividend tax rates change.
- Missing the VAT threshold because of infrequent turnover checks — since it’s measured on a rolling 12-month basis, checking only at year-end can mean registering late and facing backdated liability.
- Assuming a limited company always pays less tax — this depends heavily on profit level and how much you draw personally; it isn’t automatically true at every profit level.
- Filing Corporation Tax returns late, unaware of the doubled penalties — the increased fixed penalties from April 2026 make on-time filing more costly to get wrong than in previous years.
Editor’s Insights
- Fiscal drag from the frozen Personal Allowance means your effective tax rate can creep up year on year even without a formal rate increase — it’s worth checking your position annually, not assuming it’s unchanged.
- Marginal relief for Corporation Tax is genuinely complex to calculate by hand; most accounting software or an accountant will get this right more reliably than a manual estimate.
- If your company has associated companies, don’t forget the Corporation Tax thresholds are divided between them — this catches out some group structures that assume the full £50,000/£250,000 bands apply per company.
- Reviewing tax rates isn’t a once-a-year task worth doing only at Self Assessment or Corporation Tax filing time — rates and thresholds can change at each Budget, so an annual mid-year check is worthwhile.
- Voluntary VAT registration below the threshold can genuinely make sense for businesses with significant reclaimable input VAT, even though it adds administrative overhead.
UK Business Tax Rates at a Glance
| Tax | Rate(s) for 2026/27 | Applies To |
|---|---|---|
| Corporation Tax | 19% (small profits) / 25% (main rate) / marginal relief between | Limited companies |
| Income Tax | 20% / 40% / 45% | Sole traders, partners |
| Dividend Tax | 10.75% / 35.75% / 39.35% (£500 allowance) | Company directors/shareholders |
| National Insurance (Class 4) | Charged on profits above the threshold, on top of Income Tax | Self-employed sole traders |
| VAT | 20% standard rate | Businesses over £90,000 turnover (or voluntary) |
Tax Rate Awareness Checklist
Annual Tax Review Checklist
FAQ
What is the UK Corporation Tax rate for 2026/27? 19% for profits up to £50,000, 25% for profits over £250,000, with marginal relief tapering the rate for profits in between these thresholds.
What Income Tax rate do sole traders pay in the UK? Sole traders pay 20% (basic rate), 40% (higher rate) or 45% (additional rate) Income Tax on profits above the £12,570 Personal Allowance, plus Class 4 National Insurance.
What are the current UK dividend tax rates? For 2026/27, dividend tax is 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate), with the first £500 of dividend income tax-free.
What is the VAT threshold for UK businesses? Businesses must register for VAT once taxable turnover exceeds £90,000 in any rolling 12-month period, though voluntary registration below this threshold is also possible.
Do sole traders pay National Insurance as well as Income Tax? Yes — self-employed sole traders pay Class 4 National Insurance on business profits, calculated in addition to Income Tax, not as an alternative to it.
Is a limited company always more tax-efficient than a sole trader? Not automatically — it depends on your profit level and how much you need to draw personally; at lower profit levels, the difference can be minimal or even favour sole trader status.
Has UK dividend tax changed recently? Yes — 2026/27 saw the first dividend tax rate increase since 2022, with the basic and higher rates both rising, making it worth reviewing salary/dividend strategies set under the previous rates.
What happens if I file my Corporation Tax return late? From April 2026, fixed late filing penalties doubled — starting at £200 for filing one day late, rising to £400 after 3 months, and up to £1,000–£2,000 per return for repeated late filing.
Sources & References
- GOV.UK — Corporation Tax rates and reliefs
- GOV.UK — Income Tax rates and Personal Allowances
- GOV.UK — dividend tax rates and allowance
- GOV.UK — VAT registration threshold and rates
- HMRC — Class 4 National Insurance guidance
About the Author Written and reviewed by the Epiclectic Editorial Team. Epiclectic is an independent UK publication owned by Eternity Accountants Limited, publishing practical, fact-checked guides across accounting, business, home & living, gardening, travel, sustainability and wellness. Editorial standards: original research, fact-checking against official sources, and regular review. Last reviewed: August 2026 Sources: GOV.UK, HMRC
Conclusion
UK business tax rates aren’t something to check once and forget — thresholds freeze, rates shift at each Budget, and what was the most tax-efficient structure a few years ago may no longer be today. Reviewing your position annually, rather than relying on assumptions from previous years, is the simplest way to avoid both overpaying and an unwelcome surprise at filing time.
If you’re still deciding how to structure your business, our guide to registering a business in the UK covers sole trader versus limited company registration, and our business tax account guide walks through managing these taxes day to day once you’re trading.
For a personalised review of your specific tax position — particularly if your profits sit close to a threshold, or your dividend strategy hasn’t been reviewed recently — Eternity Accountants can help, though this guide covers what most business owners need to understand their current obligations.
