Tax Guide for Freelancers With a Limited Company

Running your freelance work through a limited company brings real tax advantages — but it also means filing a company tax return every year, managing corporation tax, and keeping on top of your own Self Assessment. This guide explains the key tax obligations for freelancers who operate through a limited company, what expenses you can claim, how VAT works, and how to pay yourself in the most tax-efficient way.

Corporation tax is the main tax your company pays on its profits. The current rate is 19% on profits up to £50,000, rising to 25% for profits above £250,000. Between those thresholds, your company may qualify for Marginal Relief, which reduces the effective rate gradually.

Key takeaways

  • Freelancers operating through a limited company pay corporation tax on company profits — 19% up to £50,000, 25% above £250,000 (from April 2023).
  • Most freelancers pay themselves a mix of low salary and dividends to minimise tax and National Insurance.
  • IR35 is the biggest tax risk for freelancers with a limited company — it can remove the tax advantages if HMRC classifies you as a "disguised employee".
  • The VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period.
  • You must file a company tax return within 12 months of your accounting period end, and pay any corporation tax owed within 9 months and one day.

What taxes does a freelancer's limited company pay?

As a freelancer operating through a limited company, your company is a separate legal entity that pays its own taxes. The main ones to understand are:

Corporation tax — Your company pays corporation tax on its taxable profits each year. From April 2023, the rate is 19% on profits up to £50,000, and 25% on profits above £250,000. If your profits fall between these thresholds, Marginal Relief reduces your effective rate gradually between the two.

VAT — Once your company's taxable turnover in any rolling 12-month period exceeds £90,000, you must register for VAT (source: GOV.UK). Even below that threshold, you can register voluntarily — which can be worthwhile if your clients are VAT-registered businesses, as you can reclaim VAT on your business expenses.

PAYE and National Insurance — If you pay yourself a salary, your company must operate PAYE and pay employer's National Insurance. Most freelancers minimise this by keeping their salary at or just below the National Insurance threshold.

Dividend tax (personal) — When you take dividends from company profits, you pay dividend tax on your personal Self Assessment. Dividend tax rates are lower than income tax rates on equivalent salary, which is why this structure is tax-efficient.

How should a freelancer pay themselves?

The most common approach for freelancers with a limited company is to pay a low salary — typically at or just below the Primary Threshold — and top up income with dividends from company profits.

This structure minimises employer and employee National Insurance, while dividends are taxed at a lower rate than salary above the basic rate band. For a full breakdown of the salary versus dividend decision, see our guide to how to pay yourself from a limited company.

Bear in mind that paying yourself a salary is usually worth doing — it counts as a qualifying year for your State Pension. However, sole director companies generally cannot claim Employment Allowance, so the employer NI saving from very low salaries matters.

What expenses can a freelancer claim?

Your limited company can deduct allowable business expenses from its profits before calculating corporation tax. Common claimable expenses for freelancers include:

  • Home office costs — a proportion of actual costs (heating, electricity, broadband) or a flat rate agreed with your accountant
  • Professional subscriptions and memberships relevant to your work
  • Equipment and technology — laptops, phones, software licences and subscriptions
  • Business travel — train tickets, mileage at HMRC's approved rates, parking
  • Professional development — courses and training directly related to your existing work
  • Accountancy fees — the cost of your accountant is fully deductible
  • Marketing and advertising — website hosting and design, advertising spend
  • Employer pension contributions — highly tax-efficient, as they reduce profits before corporation tax
Expenses must be wholly and exclusively for business purposes. Personal costs, client entertainment, and fines are not deductible. For a comprehensive list, see our guide to allowable business expenses for a limited company.

How does IR35 affect freelancers?

IR35 is the biggest tax risk for freelancers operating through a limited company. The rules target "disguised employment" — where a contractor works through a company but would, in reality, be treated as an employee if they contracted directly with the client.

If IR35 applies to an engagement, HMRC treats your income as employment income, removing the tax advantage of the limited company structure. You would owe income tax and National Insurance as if you were directly employed — even on income already subject to corporation tax.

For private sector clients with 50 or more employees or a turnover above £10.2 million, the client decides whether IR35 applies (the off-payroll working rules). Smaller clients and public sector bodies follow different rules. Working for multiple clients, using your own equipment, having the right to send a substitute, and retaining control over how and when you work all support a finding of being outside IR35.

For freelancers in IT, consulting, and professional services, IR35 status should be reviewed on every new engagement. See also our guide for accounting for contractors, which covers IR35 status and contractor structures in more detail.

Do I need to register for VAT?

You must register for VAT once your company's taxable turnover exceeds £90,000 in any rolling 12-month period (source: GOV.UK). You must register within 30 days of crossing the threshold.

If most of your clients are VAT-registered businesses, voluntary registration below the threshold can be worthwhile — you can reclaim input VAT on your purchases while your clients claim the VAT back on their side. If your clients are individuals or small businesses that cannot reclaim VAT, adding VAT to your invoices makes you more expensive to them, which is worth considering.

Common VAT schemes for freelancers include the standard method, the Flat Rate Scheme, and Cash Accounting. The Flat Rate Scheme simplifies bookkeeping by applying a fixed percentage to your gross turnover, though it may not suit every freelancer depending on your expense profile.

Filing your company tax return

As a limited company, your company must file a company tax return (CT600) with HMRC every year, even if you make a loss or have no tax to pay. The filing deadline is 12 months after the end of your company's accounting period. Corporation tax itself must be paid within 9 months and one day of the accounting period end — before the filing deadline.

You will also need to file annual accounts with Companies House and complete your own personal Self Assessment as a director. For a full walkthrough of the CT600 process, see our guide to company tax returns.

Capital allowances for freelancers

When your company buys equipment — laptops, cameras, specialist tools — it can typically deduct the full cost in the year of purchase using the Annual Investment Allowance (AIA). This is a capital allowance rather than a revenue expense, but the tax effect is the same: it reduces your taxable profit.

The AIA covers most plant and machinery. Cars are treated differently, with allowances depending on the vehicle's CO2 emissions. For more detail on how capital allowances are reported, see our guide to capital allowances.

Frequently Asked Questions

Do freelancers with a limited company pay corporation tax?

Yes. Your limited company pays corporation tax on its taxable profits each year. From April 2023, the rate is 19% on profits up to £50,000 and 25% on profits above £250,000, with Marginal Relief applying between those thresholds. You file a company tax return (CT600) with HMRC within 12 months of your accounting period end.

What is the VAT threshold for a freelancer's limited company?

Your company must register for VAT once taxable turnover exceeds £90,000 in any rolling 12-month period, as confirmed on GOV.UK. You can also register voluntarily below the threshold, which can be advantageous if your clients are VAT-registered businesses and you incur significant business expenses.

Does IR35 apply to all freelancers with a limited company?

IR35 applies on an engagement-by-engagement basis, not to your company as a whole. Whether it applies depends on the nature of each client relationship — factors include control, substitution rights, financial risk, and how integrated you are in the client's organisation. Working for multiple clients and having genuine business independence reduce your IR35 exposure.

How do freelancers pay themselves tax-efficiently from a limited company?

Most freelancers pay a low salary — typically at or just below the National Insurance threshold — and top up with dividends from company profits. Dividends are taxed at lower rates than salary and avoid National Insurance contributions. Employer pension contributions made by the company are also highly tax-efficient, reducing profits before corporation tax applies.

Summary

Running freelance work through a limited company requires managing corporation tax, VAT, PAYE, and your personal Self Assessment — but it remains one of the most tax-efficient structures available to self-employed professionals in the UK. Keeping expenses well-documented, structuring your remuneration around salary and dividends, understanding your IR35 position on each engagement, and filing on time are the foundations of sound freelancer tax management.