Limited Company Tax Rates 2021/22
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April 2021

Limited Company Tax Rates 2021/22

Take a look at the limited company tax rates for 2021/22 as well as our tips to help you with the new tax year.

Jamie Trowell
Jamie Trowell
Accounting Lead at Coconut
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Owning a limited company comes with some financial responsibilities. From registering to pay tax and making sure that liabilities are paid to HMRC on time, there’s plenty to remember. So, we’ve put together a list of the latest tax rates to help you stay one step ahead.

Corporation Tax

Corporation tax is paid on your limited company profits. It’s just one flat rate that applies to every company, of all sizes. This is set to change after the latest budget announcement - corporation tax will increase to 25% as of the 1st April 2023 but, for now, this remains at 19% for the 21/22 tax year.

VAT

Once the annual revenue of your company reaches £85,000 in a one-year period, you’ll need to register for Value Added Tax (VAT), a tax paid on most goods and services.

Once you’ve registered you’ll need to start charging VAT on your sales, but it’s important to remember that you can also reclaim VAT on purchases.

This requires a bit of thought as you have to decide whether to increase your price to charge the VAT onto your customers, or keep the prices the same and pay the VAT yourself – reducing your profits. If your customers are businesses and mainly VAT registered it’s easier to add the VAT on as they’re likely to be able to claim it back. However, if your customers are not businesses and aren’t VAT registered, the increase in price could have a negative impact on your sales and ability to compete with other businesses who have a similar product or service.

VAT can get a bit complicated as there are different rates and VAT schemes to be aware of. It requires careful record-keeping of all transactions and the rate of VAT they were charged at.

Below are the standard VAT rates:

VAT Type

Rate

Standard – applicable to most goods and services
20%
Reduced rate – a lower rate applicable to certain goods and services
5%
Zero rate
0%

The government made an announcement on the 30th September 2021 and now certain VAT registered businesses can temporarily apply a 5% reduced rate of VAT. The industries included are:

  • Hospitality
  • Hotel and holiday accommodation
  • Admissions to certain attractions

You can see a full list of VAT rates on different goods and services here.

Employer National Insurance rates

If your company is taking on members of staff, it’s important to remember that, as an employer, you have certain obligations. You are responsible for deducting income tax and National Insurance from your employee’s wages and paying the amounts deducted to HMRC each month.

This table shows how much employers pay towards an employees’ National Insurance for the 2021 to 2022 tax year:

Annual Salary

Employers NI Payable

Below £8,840
No National Insurance is payable
Above £8,840
13.8%

Now we’ve covered company taxes, let’s look at the personal taxes that may apply to you as the director of a limited company.

This is split across three key areas: income tax, national insurance, and dividends.

Income tax (for directors and employees)

You may decide to take a salary out of the company, or perhaps you have employees on the payroll. In both cases, you’ll need to consider income tax and make sure you are registered for payroll.

If you don’t already have an accountant, we’d recommend that you chat to one about how to structure your tax to make sure you pay the correct amount, and to get help setting up and running payroll each month.

Personal Allowance

Every individual has a personal allowance on income that resets each tax year. This is the amount of income you can earn tax-free, and it changes based on the amount of income you earn as shown below.

This tax year it has increased from £12,500 to £12,570.

Income Bracket

Personal Allowance

£0 – £100,000
£12,570
£100,001 – £125,140
Your personal allowance will decrease by £1 for every £2 of income over £100,000
Over £125,140
£0

Income Tax Rates 21/22

If you’re running a payroll scheme through your company, your employees will be subject to income tax rates based on the salary level run weekly or monthly.

For the 21/22 tax year, if you are based in England, Wales, or Northern Ireland, all income that you or any other employees earn over and above your personal allowance will be taxed as follows:

Tax Bands

Rate

Earnings below personal allowance (£12,570)
No income tax payable
Basic rate (£12,571- £50,270)
20%
Higher rate (£50,271 – £150,000)
40%
Additional rate (Over £150,000)
45%

If you live in Scotland, different income tax rates apply, as shown below:


Tax Bands

Rate

Earnings below personal allowance (£12,570)
No income tax payable.
Starter rate (£12,571- £14,667)
19%
Basic rate (£14,668 and £25,296)
20%
Intermediate rate (£25,297 and £43,662)
21%
Higher rate (£43,663 and £150,000)
41%
Additional rate (Over £150,000)
46%

National Insurance Rates 21/22

In addition to income tax, if you pay yourself (or any employees) a salary through your limited company, you may be subject to pay the employee’s national insurance. The rates for this year are set out below:

Annual Salary

Class Payable 1

Below £9,568
No National Insurance is payable
£9,569 – £50,270
12%
Over £50,271
12%

Dividend Tax Rates 21/22

A dividend is a share of the company’s profits, paid to its shareholders. ‘Shareholder’ is the legal term for a person who owns all or part of a company, which in this case is you.

The first £2,000 is tax-free, from that point forward the rates below will apply:

Tax Bracket

Dividend rate

Basic rate
7.5%
Higher rate
32.5%
Additional rate
38.1%

Need some guidance?

We always recommend talking to an accountant to make sure you’re paying the correct amount of tax. They will be able to advise on your specific situation and with a view on what’s best for your business.

If you already have one, you can securely share access to your bookkeeping data with them through the Coconut Accountant Portal.

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