Corporation Tax for Freelancers: A Complete Guide for Limited Company Contractors
If you freelance through a limited company, you're responsible for filing a Corporation Tax return (CT600) every year. This guide covers everything you need to know — from what's taxable to how to extract profits tax-efficiently.
Why Do Freelancers Use Limited Companies?
Most freelancers earning over £50,000 benefit from trading through a limited company:
- Lower overall tax — corporation tax at 19-25% vs income tax at up to 45%
- Dividend income — taxed at lower rates than salary
- Expense flexibility — claim a wider range of business costs
- Professional image — clients often prefer dealing with limited companies
- Limited liability — personal assets are protected
What's Taxable?
Your company pays corporation tax on profits — that's all income minus allowable expenses.
Income includes:
- Client invoices and contract payments
- Interest earned on business bank accounts
- Any other company income
Allowable expenses include:
- Your salary (as a director)
- Employer's NI contributions
- Pension contributions
- Professional indemnity insurance
- Accountancy and legal fees
- Software subscriptions and tools
- Home office costs
- Travel to temporary workplaces
- Training directly related to your work
- Marketing and website costs
- Bank charges
Full list of allowable expenses →
The Optimal Pay Structure
Most freelance directors use a combination of salary and dividends:
Step 1: Pay Yourself a Salary
Set your salary at the Primary Threshold (£12,570 for 2024/25):
- Below the personal allowance — no income tax
- Below the NI threshold — no employee NI
- Small employer's NI cost (but offset by Employment Allowance if you have other employees)
- Deductible for corporation tax
Step 2: Employer Pension Contributions
Make employer pension contributions:
- 100% deductible for corporation tax
- No NI for the company or you
- Up to £60,000 per year (Annual Allowance)
- Money grows tax-free in your pension
Step 3: Dividends for the Rest
Pay yourself dividends from post-tax profits:
- £1,000 tax-free dividend allowance (2024/25)
- 8.75% on dividends within basic rate band
- 33.75% on dividends within higher rate band
- 39.35% on dividends within additional rate band
Example: £80,000 Company Revenue
| Item | Amount |
|---|---|
| Revenue | £80,000 |
| Minus expenses | -£10,000 |
| Minus salary (£12,570) | -£12,570 |
| Minus employer pension (£10,000) | -£10,000 |
| Taxable profit | £47,430 |
| Corporation tax (19%) | £9,012 |
| Profit after tax | £38,418 |
| Available for dividends | £38,418 |
Total tax burden (CT + dividend tax + income tax) is significantly less than if the £80,000 were earned as employment income.
Read our dividends vs salary guide →
IR35 and Corporation Tax
IR35 determines whether HMRC treats your contract income as employment income.
Outside IR35
- You invoice your client normally
- Income is your company's revenue
- You choose how to extract profits (salary + dividends)
- Standard corporation tax applies
Inside IR35
- Your client (or agency) deducts tax and NI at source
- Your company receives the net payment
- You can claim a 5% allowance for administration costs
- Corporation tax applies to any remaining profit
- Less scope for tax-efficient extraction
Read our IR35 and corporation tax guide →
Key Deadlines for Freelancers
| Deadline | What |
|---|---|
| 9 months + 1 day after year-end | Pay corporation tax |
| 12 months after year-end | File CT600 return |
| 9 months after year-end | File accounts at Companies House |
| 31 January | Personal self-assessment (for dividends) |
Example: Year-end 31 March 2025
- Pay CT by 1 January 2026
- File CT600 by 31 March 2026
- File CH accounts by 31 December 2025
Common Mistakes Freelancers Make
1. Not Separating Business and Personal Expenses
Use a dedicated business bank account. Mixed expenses are hard to claim and invite HMRC scrutiny.
2. Forgetting to Claim Home Office Costs
If you work from home, claim a proportion of:
- Rent or mortgage interest
- Council tax
- Utilities (gas, electric, water)
- Broadband
- Home insurance
HMRC allows a flat rate of £6/week without receipts, or actual costs with records.
3. Over-Extracting via Director's Loan
Taking more money than your salary + dividends creates an overdrawn director's loan account. If not repaid within 9 months of year-end, your company pays a 33.75% tax charge (Section 455).
Director's loan account guide →
4. Missing the Payment Deadline
Corporation tax is due 9 months and 1 day after your period ends. Late payment incurs interest from day one, plus penalties for significant delays.
5. Not Filing a Dormant Return
Even if your company earned nothing, you must file a CT600 (a "nil return"). HMRC charges £100 for late filing, increasing to £1,600+ after 12 months.
What happens if you don't file →
Equipment and Tools
Freelancers often buy equipment for work. Here's how to handle it:
| Item | Treatment |
|---|---|
| Laptop/computer (< £1M total) | 100% AIA deduction |
| Software subscriptions | Revenue expense (fully deductible) |
| Office furniture | 100% AIA deduction |
| Mobile phone (business use) | Revenue expense or AIA |
| Monitor, keyboard, peripherals | 100% AIA deduction |
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