Contractor Tax Extraction Planner & Take-Home Calculator (2026/27)

The most tax-efficient salary is £12,570, which equals the personal allowance. At this level you pay no income tax and no employee National Insurance on your salary, because the NI primary threshold also sits at £12,570 in 2026/27. Your company will still pay employer NI of 15% on the salary above the £5,000 secondary threshold, which works out at around £1,136. Some contractors choose a lower salary equal to the secondary threshold (£5,000) to eliminate employer NI entirely, but this forfeits the personal allowance on the remaining £7,570, so it is rarely optimal unless you are maximising pension contributions instead.

It depends on when you need the money. Dividends give you cash now: they are taxed at 10.75% in the basic rate band after a £500 allowance (up from 8.75% in 2025/26), but only after your company has already paid corporation tax (19% on profits up to £50,000). An employer SIPP contribution bypasses corporation tax entirely and grows tax-free inside the pension. The trade-off is that pension money is locked until age 57. A common approach for higher earners is to take enough dividends to cover living costs and direct the remainder into a SIPP to minimise total tax.

The pension annual allowance is £60,000 for 2026/27. You can also carry forward unused allowance from the three previous tax years if you were a member of a pension scheme. If your adjusted income exceeds £260,000, a tapered annual allowance applies, reducing your limit by £1 for every £2 of income above that threshold, down to a minimum of £10,000. The calculator flags when a contribution would exceed your effective allowance.

Marriage Allowance allows a spouse or civil partner who earns below the personal allowance (£12,570) to transfer £1,260 of their unused personal allowance to their partner. The recipient gets a 20% tax credit worth £252 per year. To qualify, the receiving partner (the contractor) must be a basic-rate taxpayer, meaning their total income must be between £12,570 and £50,270. If your dividend income pushes you into the higher rate band, you cannot claim it that year. The calculator applies this saving automatically when the conditions are met.

Corporation tax is charged on your company's taxable profit before dividends are paid. In 2026/27 the small profits rate is 19% on profits up to £50,000, and the main rate is 25% on profits above £250,000, with marginal relief between those figures. Most contractors earning under £750/day pay close to 19%. This means that for every £100 of profit, approximately £81 reaches you as a potential dividend, then dividend tax applies on top. Routing money through an employer SIPP contribution avoids this double layer entirely.

At common tech contractor rates the gap is substantial. At £500/day for 220 days (£110,000 revenue), outside IR35 typically yields £20,000 to £30,000 more per year in net take-home than inside IR35, depending on pension contributions and expenses. Inside IR35, your full deemed salary is subject to PAYE income tax and National Insurance, plus the umbrella deducts employer NI before calculating your salary. Use the IR35 comparison section of this calculator to see the precise figure for your day rate.

In a straightforward sense, no: HMRC's settlement legislation prevents you from directing dividends to a spouse simply to shift income to a lower tax band if the shares carry special rights. However, if your spouse is a genuine shareholder with ordinary shares, they can receive dividends on those shares. This is a complex area with specific anti-avoidance rules (the Arctic Systems case is the key precedent) and is outside the scope of this calculator. The calculator does model Marriage Allowance, which is the straightforward and HMRC-approved mechanism for basic-rate taxpayers whose spouse earns below £12,570.

If all your contracts are inside IR35, the net pay difference between using your own limited company and working through an umbrella is usually small, because both routes result in PAYE taxation. However, keeping the company gives you flexibility to take outside-IR35 contracts without restructuring, and preserves the option to extract accumulated profits tax-efficiently in future years. The main costs are accountancy fees (around £1,500/year) and the administrative burden of filing accounts and confirmation statements.

If the total pension contributions made by you and your employer in a tax year exceed your annual allowance (£60,000 in 2026/27, or the tapered figure for high earners), HMRC charges an annual allowance charge at your marginal income tax rate on the excess. The charge is added to your self-assessment tax bill. You can avoid this by using carry forward: unused allowance from the previous three tax years can be added to this year's limit if you were a pension scheme member in those years. The calculator warns you when a contribution would exceed the standard £60,000 limit.

Yes. For income between £100,000 and £125,140, the personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000. At £125,140 the allowance reaches zero. This creates an effective 60% marginal tax rate in that income band. Contractors earning in this range should consider increasing employer SIPP contributions to bring adjusted net income below £100,000, which can restore the full personal allowance. The calculator flags a warning when your total income from salary and dividends falls in the taper zone.