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 2025/26):
- Below the personal allowance — no income tax
- At the employee NI threshold — no employee NI
- There is an employer's NI cost: 15% on salary above the £5,000 secondary threshold (about £1,135 on a £12,570 salary). The £10,500 Employment Allowance can wipe this out — but not if the only person paid above the threshold is a sole director
- Deductible for corporation tax (the salary and the employer NI both reduce your taxable profit)
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:
- £500 tax-free dividend allowance (2025/26)
- 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 NIC | -£1,135 |
| Minus employer pension (£10,000) | -£10,000 |
| Taxable profit | £46,295 |
| Corporation tax (19%) | £8,796 |
| Profit after tax | £37,499 |
| Available for dividends | £37,499 |
Profits of £46,295 fall under the £50,000 small profits threshold, so the whole amount is taxed at 19%. 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
What happens depends on who operates the rules:
- Medium or large private-sector clients, and all public-sector clients apply the off-payroll working rules. The client (or agency) decides your status and the fee-payer deducts income tax and NI at source before paying your company. The net payment can be passed to you without further tax, and there is no 5% expenses allowance — it does not apply where the fee-payer deducts at source
- Small private-sector clients are exempt from the off-payroll rules, so your own company must assess the contract and, if it's inside IR35, calculate a deemed employment payment itself. Only in this case does the 5% allowance for the costs of running the company still apply
- Corporation tax applies to any remaining profit
- Either way, inside-IR35 income leaves far 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 2026
- Pay CT by 1 January 2027
- File CT600 by 31 March 2027
- File CH accounts by 31 December 2026
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 the loan isn't repaid within 9 months and 1 day of your year-end, your company pays a 33.75% tax charge (Section 455), refundable once the loan is repaid.
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 doesn't trigger a separate penalty, but HMRC charges interest from day one — currently 7.75% a year — and the interest keeps accruing daily until you pay.
5. Ignoring a Notice to Deliver a Return
If HMRC has sent your company a notice to deliver a Company Tax Return, you must file a CT600 even if the company made no profit (a "nil return"). Late filing penalties are fixed: for filing dates before 1 April 2026 it was £100, plus another £100 at 3 months late; for filing dates on or after 1 April 2026 these doubled to £200 and £200 (and £1,000 each for a third consecutive late return). If tax is also unpaid, HMRC adds 10% of the unpaid tax at 6 months late and another 10% at 12 months. If your company is genuinely dormant, tell HMRC — once HMRC accepts it as dormant, no CT600 is due unless they issue a notice.
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 |
File Your CT600 with Taxpipe
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- ✅ Guided wizard — no jargon
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- ✅ Submission confirmation receipt