Personal Companies – Tax Tips and Traps

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Personal Service Company Tax for Directors and Their Advisers

By Sarah Bradford BA (Hons), FCA, CTA (Fellow)

A personal company is a limited company in which one individual is the sole director and shareholder, whether it is a personal service company through which they provide their services to clients or a business of any other kind. Running a business this way is never just a single tax decision, it's two: the company has its own corporation tax position, the director/shareholder has their own personal tax position, and the two interact constantly.

In this practical 2026/27 guide, Chartered Accountant and Chartered Tax Adviser Sarah Bradford sets out exactly what every personal company director and their adviser needs to know to run the company efficiently, extract profits with minimum tax and National Insurance cost, and avoid the traps that catch out even experienced business owners.

What Is a Personal Company?

There is no single definition of a personal company. For the purposes of this guide, it is a company where an individual is the sole director and shareholder. The company may or may not be a personal service company, which is one where an individual provides their services to a third party through a company. A personal company may be set up from the outset, or created when an individual incorporates their sole trader business.

As a separate legal entity, the company pays corporation tax on its own profits and gains, and those profits must be extracted before they can be used personally. For some tax purposes, such as business asset disposal relief, the definition is much wider: a company qualifies where an individual has at least 5% of both the shares and the voting rights, together with a 5% entitlement either to distributable profits and assets on a winding-up or to the sale proceeds if the company is sold.

Personal Company Tax Traps and HMRC Risk

The company and personal tax positions meet in how profits are extracted, how losses are relieved, how the director's loan account is run, and how the business is eventually sold, passed on or wound up. The tax advantages of trading through a company have also been eroded in recent years by rising dividend tax rates, higher corporation tax and higher employer's National Insurance, and most personal companies cannot claim the employment allowance because the sole employee is also a director.

A director's loan still outstanding at the corporation tax due date triggers a section 455 charge on the company of 35.75% for loans made on or after 6 April 2026. Where a worker would be an employee if they provided their services to the client directly, the IR35 or off-payroll working rules bring their tax and National Insurance into line with an employee's. And failing to meet the business asset disposal relief conditions on a sale could cost up to £60,000 in extra tax.

Get that interaction right and a personal company remains one of the most flexible and tax-efficient ways to run a business. Get it wrong, and the traps are numerous, and often expensive.

What This Report Covers

In nine chapters, with six worked examples and more than 170 practical tips and traps, this 2026/27 guide will show you how to:

• Understand what counts as a personal company and the director's responsibilities that come with it
• Set up a new company, or incorporate an existing sole trader business, in the most tax-efficient way
• Calculate and minimise the corporation tax charge, including use of marginal relief and loss reliefs
• Claim the right capital allowances for plant and machinery, from the annual investment allowance to full expensing
• Meet the company's obligations as an employer, covering PAYE, Class 1 National Insurance and statutory payments
• Decide when to register for VAT and whether the flat rate scheme will save money or cost it
• Set the optimal salary and dividend mix for 2026/27, and identify other tax-efficient ways to extract profits
• Operate the director's loan account correctly and avoid an unwelcome section 455 charge
• Navigate the IR35 and off-payroll working rules and establish which set of rules applies
• Plan an exit, whether by gifting shares to the family, selling the company or closing it down
• Put a succession strategy in place so the business passes on the way the owner intends
• Plus much more...

Setting up, corporation tax and capital allowances

Setting up a company or incorporating a sole trader business, including incorporation relief, which must now be claimed for transfers on or after 6 April 2026. The guide then covers the 19% small profits rate, the 25% main rate and marginal relief, relief for trading and terminal losses, and how to combine the annual investment allowance, full expensing, the new 40% first-year allowance and the reduced 14% main rate writing down allowance.

Employer duties and VAT

PAYE and Class 1 National Insurance, why most personal companies cannot claim the £10,500 employment allowance and how to qualify for it, statutory payments, RTI penalties, auto-enrolment and benefits in kind ahead of mandatory payrolling from 6 April 2027. The VAT chapter covers registration, transferring a sole trader's VAT number and whether the flat rate scheme will save money or cost it.

Salary, dividends and other ways to extract profits

Why a salary of £12,570 is the optimal salary for 2026/27 where the personal allowance is fully available, and how to take further profits as dividends using the £500 dividend allowance. The guide also looks at tax-exempt benefits in kind, employer pension contributions and paying rent to the director, and at traps such as unlawful dividends and the loss of the property income allowance.

Director's loan accounts and the section 455 charge

When the section 455 charge arises and when it is repaid, the tax and National Insurance cost of clearing a loan by introducing funds, a bonus, a dividend or a write-off, the anti-avoidance rules on repaying and re-borrowing, the benefit-in-kind charge on loans above £10,000, and what to consider when the director lends money to the company instead.

IR35 and off-payroll working

How to decide whether a worker would be an employee if they provided their services directly, including marginal cases and HMRC's CEST tool. The guide explains which set of rules applies, depending on whether the end client is in the public sector or is a small, medium or large private sector organisation, works through the nine-step IR35 deemed payment calculation with an example, and shows how the off-payroll working rules place responsibility on the end client.

Exit strategies and succession planning

Gifting shares to the family with gift hold-over relief, selling the company with business asset disposal relief at 18% on gains up to the £1m lifetime limit, or closing it down, whether it is solvent or not. The guide ends with succession planning, including making a will and the £2.5m cap on 100% business property relief for transfers on or after 6 April 2026.

Who Will Benefit From This Report?

This guide is essential reading for any owner or director of a personal company, whether newly incorporated or long established, and including contractors working through a personal service company, who wants to run the business as tax-efficiently as possible while staying on the right side of HMRC. It is equally valuable for accountants and tax advisers supporting owner-managed company clients through profit extraction, director's loan account, IR35 and exit planning decisions.

If you own, direct or advise a personal company, this guide belongs on your shelf.

About Sarah Bradford FCA CTA

Sarah Bradford BA (Hons), FCA, CTA (Fellow) is a Chartered Accountant and Chartered Tax Adviser. She is the director of Writetax Ltd, a company providing technical writing services on tax and National Insurance.

Sarah writes widely on tax and National Insurance and contributes regularly to Business Tax Insider, Property Tax Insider and Tax Insider Professional.

She is also the author of numerous Tax Insider guides, including Tax-Efficient Ways to Extract Cash from Your Company, IR35 – Tax Tips for Contractors, Tax-Efficient Business Exit Strategies and Directors' Loan Accounts Explained.

Read an excerpt from this report: Overdrawn Director's Loan Accounts: Managing the Section 455 Charge.