Your Results

Net Income

Net income is your total taxable income before any Personal Allowances, less any qualifying pension contributions. Your personal allowance is reduced by £1 for every £2 that your net income is above £100,000. Your allowance is zero if your income is £125,140 or above. If your net income exceeds £150,000, you will likely need to submit a Self-Assessment tax return.

Take Home

Take home is the amount you receive into your personal bank account after deducting all taxes, accrued holiday pay and student loan contributions.

Total Capital

Total capital consists of your take home pay, plus any pension contributions and accrued holiday pay. It is designed to give a more accurate representation of the overall financial gain from a contract and can be compared against the same figure in our Outside IR35 Calculator.

Annualised Earnings

An annualised calculation estimates how much you will earn for a full year based on a defined working time variable: hours, days or weeks. As a frame of reference, a standard year has 260 working days, with most contractors aiming to work between 220 and 230 days.

Specific Dates

If you know a contract's start and end date, you can enter it here to calculate how much you will earn over a specific period. Bank holidays are automatically excluded from the number of working days.

The specific dates functionality only works if the timing input is set to ‘Per Day’.

Tax Year

By default, the current tax year is applied, but if you wish to see calculations for other years, you can select them from the drop-down menu. Where tax rates change during the year, a blended rate is applied.

Tax Code

1257L is the standard tax code used by most people. If you are unsure of your tax code but think you will earn over £100k, leave the settings on Standard. The tapered personal allowance will be considered automatically.

If you live in Scotland, you pay a different rate of income tax. You'll pay the same rate as the rest of the UK on dividends.

Non-Standard Tax Code

HMRC may provide a non-standard tax code if your situation calls for it. The letter refers to your specific situation and is used to adjust your personal allowance. Most codes also contain a number, which usually refers to the amount you can earn before any tax is due, divided by 10.

National Insurance

The NI category letter determines what contributions employers and employees need to make when running payroll. Most individuals have a NI category letter of A.

Other Income

Other income and dividends account for any other income received during the year that would usually be included on a Self-Assessment tax return. For income, this may be from a second job, property investment or a side hustle. Dividends would usually come from any qualifying investments held.

Student Loan

Student loans are repaid using different methods depending on when you started the course for which you took the loan and where you lived.

Salary Sacrifice

Some umbrella companies facilitate salary sacrifice arrangements, where a contractor agrees to reduce their pay, with the difference paid into their SIPP. The reduction in pay means lower income tax and national insurance (both employer's and employee's contributions).

These tax breaks make salary sacrifice the most popular choice for contractors who want to save for their future in a tax-efficient way.

Salary Sacrifice

As a contractor, you can make pension contributions from your personal funds or your company’s pre-tax income. Most limited company contractors will make their pension contributions through their company as it is more tax-efficient than contributing your funds as an individual. Pension contributions made directly from your company’s income are invested before tax, which means you will save the amount you would have paid in both income and corporation tax on the contribution

Unlike personal pension contributions, the amount that can be invested directly from your company income is not linked to the amount you take as a salary.

Salary Sacrifice

A salary sacrifice arrangement is where an employee agrees to reduce their pay, with the difference paid into their SIPP. The reduction in pay means lower income tax and national insurance.

Workplace Pension

Umbrella company contractors are automatically enrolled in a workplace pension scheme. Unlike permanent employees, umbrella workers are responsible for the employee's contribution (minimum 5%) and the employer's contribution (minimum 3%). Once enrolled, you're entitled to opt out or cease active membership.

Workplace Pension

Employees are automatically enrolled in a workplace pension scheme. Once enrolled, you're entitled to opt out or cease active membership.

Allowances

The Blind Person's Allowance is an extra tax-free allowance, meaning you can earn more before paying Income Tax.

The Marriage Allowance lets you receive a fixed amount of your spouse/civil partner's Personal Allowance, thereby reducing your tax bill.

Umbrella Margins

The umbrella company margin is the amount the umbrella company charges on each payment you receive. It's an administration fee, covering the cost of running your payroll and the other operational costs of running a business.

Holiday Pay

There are two main methods by which you can receive your holiday pay as an umbrella company contractor:

  • Advanced Payment: The umbrella company adds your holiday pay to your regular payslip. This option is the most preferred solution amongst umbrella company contractors
  • Accrual Method: The umbrella company sets aside your holiday pay until you decide to take annual leave or when you leave the company.

Apprenticeship Levy

The UK Government initiated the Apprenticeship Levy in April 2017 for all employers paying a wage bill of more than £3 million per year. Umbrella Companies that meet this criterion are required to pay 0.5% of their payroll each month as a levy tax, a charge they pass onto contractors.

Director’s Salary

You have four options:

  • Simplified: At £9,100, your salary is at the Secondary Threshold and below the Primary Threshold, so there is no employer's or employee's National Insurance (‘NI’) due. It is higher than the Lower Earnings Limit, so you will continue to earn NI credits. Although £9,100 is more straightforward regarding administration, you are roughly £180 worse off than the salary of £12,570 due to less of an offset against your corporation tax bill. This option is usually only chosen by contractors without an accountant, wanting to avoid the burden of making NI payments.
  • Tax Efficient: Most contractors choose £12,570, as this is the most tax-efficient option whereby you maximise your personal allowance. Although you must make NI contributions, this is offset by the additional corporation tax savings. £12,570 is the best salary for a company with multiple employees as your company becomes eligible for the employment allowance.
  • Other or None: The optimum salaries mentioned above are only advisable if the director has their total personal allowance. When the director has other income (such as a second job or from rental properties), it may be advisable to pay a different salary.
  • Employment Allowance: The employment allowance allows eligible employers to reduce their Employer’s National Insurance liability by up to £5,000. There are multiple criteria for eligibility, though the relevant one here is that a company is not eligible for the employment allowance if there is only one employee in the company and that employee is also a director.

    What this means in practice is that if you are a limited company contractor and you employ your spouse, you can both take salaries of £12,570 and use the employment allowance to reduce the Employer’s National Insurance liability to zero.

Second Employee

It is common for contractors to employ a spouse (or other family members) in their business as a second employee. It not only provides the opportunity to maximise tax efficiencies by paying them a salary and utilising their income thresholds, but also helps ease the administrative burden of running a Limited Company.

Retained Earnings

Owners of limited companies can plan a tax-efficient distribution of dividends by leaving surplus profit in the business and withdrawing it in a later tax year. The profit left within the company is known as ‘retained earnings’. Although corporation tax is still owed, no dividend tax is due until the money is paid to shareholders.

Business Asset Disposal Relief (‘BADR’)

Business Asset Disposal Relief (‘BADR’) is a form of tax relief that reduces the rate of capital gains tax paid to 10%, and most contractors can claim the relief when they decide to close their personal limited company. Retained earnings are a qualifying asset, meaning they are eligible for the reduced tax rate.

Joint Ownership

Joint Ownership Dividends are distributed according to the percentage of company shares owned by each shareholder, i.e. if a contractor and their partner each own half the company’s shares, they will each receive 50% of every dividend distribution.

Recurring Expenses

Limited company expenses are allowable expenses that your business can claim, they are subtracted from your revenue, reducing the amount of corporation tax you pay. You can only claim for the expenses you incur 'wholly and exclusively' during the everyday running of your business.

Recurring expenses may include accountancy fees, insurance, phone bills, professional subscriptions etc.

One Off Expenses

One off expenses include items such as computer equipment, training courses, eligible travel costs etc.

Bonus

Your bonus is paid in addition to regular pay.

overtime 1

Overtime refers to any hours worked that exceed your normally scheduled working hours.

overtime 2

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Taxable Benefits

A taxable benefits (or ‘benefit in kind’) is any non-cash benefit of monetary value provided by a company to an employee that isn’t ‘wholly and exclusively’ for the purposes of the business. They are often called 'perks', 'fringe benefits' or 'notional pay'.


Companies use benefits in kind to reward employees over and above paying their wages and bonuses. The rewards have a monetary value attached, so they are treated as taxable income.

Outside IR35 Calculator
via Limited Company

Our Outside IR35 calculator looks at the financial implications of operating as a genuine business, outside of the IR35 rules.

Enter the relevant information in the input fields and our Outside IR35 Calculator will calculate the impact of working Outside IR35 via a limited company. You can use this calculator to review a split of your tax and take home pay, as well as a detailed breakdown of your limited company workings.

Enter Your Contract Rate

£

Net Income

£0

Take Home

£0

Total Capital

£0

Detailed Inputs

Take Home and Taxes

Limited Company

Revenue -
Salaries-
Employer’s NI-
Recurring Expenses-
One-off Expenses-
Pension-
Operating Expenses-
Profit Before Tax-
Corporate Tax-
Net Profit [Distributed Profit] - [-]
Your Share of Distributed Profit0

Take Home

Distributed Profit-
Other Dividends-
Salary-
Other Income-
Total Earnings-
Income Tax-
Dividend Tax-
National Insurance-
Total Taxes-
Student Loan-
Take home0

Income Tax, Dividend Tax and National Insurance

INCOME TAX RATE TAX
Corporation Tax                     -
Totals -                     -

Outside IR35 Calculator Information

How to use the calculator

There are two ways to use the calculator:

(1) Simplified: We recognise that tax rules can be complicated, so all you need to do is populate the "Contract Rate" and "Frequency" input boxes, and we will do the rest. Our Outside IR35 Calculator has been pre-populated with the most common variables, so once you enter the contract rate, we can provide an accurate estimate of the financial implications of working Outside IR35 via an umbrella company. This is useful for those wanting to calculate an estimate of their take-home pay quickly or those who may not yet have access to all the relevant contract details.

(2) Advanced: Our calculator offers dozens of editable input fields for those wanting more precise control over the variables used in the Outside IR35 calculation. Our calculator uses the calculation methodologies prescribed by HMRC, so adjusting these input fields to represent the actual working arrangements of the Outside IR35 contract in question will provide an accurate breakdown between take-home pay and all relevant deductions.

What do ‘Your Results’ mean?

Net Income
Net income is your total taxable income before any Personal Allowances, less any qualifying pension contributions. Your personal allowance is reduced by £1 for every £2 that your net income is above £100,000. Your allowance is zero if your income is £125,140 or above. If your net income exceeds £150,000, you will likely need to submit a Self-Assessment tax return.

Take Home
Take home is the amount you receive into your personal bank account after deducting all taxes, accrued holiday pay and student loan contributions.

Total Capital
Total capital consists of your take home pay, plus any pension contributions and accrued holiday pay. It is designed to give a more accurate representation of the overall financial gain from a contract and can be compared against the same figure in our Outside IR35 Calculator.

What is IR35?

IR35 is an employment status test determining whether a contract points towards employment or self-employment. It combats tax avoidance by closing loopholes, ensuring contractors working the same way as permanent employees pay the same taxes.

If your contract is 'inside IR35', it points towards employment. Your working arrangements are similar to those of a permanent employee, so HMRC imposes broadly the same income tax and national insurance liabilities

If your contract is 'outside IR35', it points towards self-employment, and you can enjoy the tax efficiency that self-employment brings (as well as all the associated risks).

How does IR35 work?

IR35 applies on a contract-by-contract basis. For each contract, the relevant 'decision-maker' (usually the end client) prepares a Status Determination Assessment ('SDS'). The SDS looks at the engagement contract's wording and the contractor's day-to-day working practices and decides whether IR35 applies.

HMRC offer detailed guidance notes and an online tool to help decision-makers determine whether IR35 is relevant. Third parties also specialise in performing these assessments and providing insurance against a potentially incorrect determination.

Who does IR35 apply to?

Any contractor that is a UK resident for tax purposes has the potential to be impacted by IR35. Although the party responsible for performing the SDS can vary, if you are a contractor paying tax in the UK, you need to consider IR35.

This is a point that often confuses contractors. They mistakenly believe that if a potential client is overseas, then IR35 doesn't apply. Instead, they become responsible for the SDS, decide whether they are inside IR35, and hold the liability should this decision be wrong.

What is a limited company?

A limited company is a type of business with a distinct legal identity, separate from those who own it (the shareholders) and those appointed to manage it (the directors). It is a business structure that limits the liability the company’s owners are exposed to.

In the event the limited company faces financial hardship, the shareholders’ personal assets are not at risk beyond their investment in the business. This is different to a sole trader or general partnership, both types of unincorporated businesses without legal distinction between the owners and the business itself.

As a limited company is a distinct legal entity, it can enter contracts in its own name, employ staff, sue and be sued, and is responsible for its debts and liabilities.

What is a ‘personal services company’?

A personal services company (‘PSC’) is simply another name for a private limited company set up by a contractor to provide their services to clients. They’re most often used in Outside IR35 arrangements, with the company acting as an intermediary between contractor and client.

In most situations, the company is owned 100% by the contractor; they are the sole shareholder and director.

When is a limited company right for me?

In general, a limited company is right for you if:

  • Your contract is Outside IR35, and
  • You intend on contracting for the long term.

If either of these criteria isn’t met, you may want to consider working through an umbrella company.

Why Contractors Don't Work As Sole Traders

Contractors rarely work as sole traders as they usually don't have a choice; most agencies and clients will refuse to engage them. They will stipulate that they require a company (limited or umbrella) to act as an intermediary in the chain of services.

They do this for two main reasons:

  • Similar to IR35, if a client hires a sole trader as a contractor and is subsequently subject to an HMRC investigation over their employment status, they are liable for any additional income tax, National Insurance contributions, penalties, or fines. Most are unwilling to take on this risk.
  • As no intermediary (limited company etc) separates the contractor from the client, a contractor is one step closer to the employer. Therefore, there is a greater risk that an individual trading as a sole trader could look to claim employment rights from the client, a common occurrence in sectors such as construction.

In addition to the above, operating as a sole trader has downsides for the contractors themselves. For a sole trader, there is no distinction between business and individual. You hold personal responsibility for the businesses' debts and may have to sell off personal assets to meet those debts should something go wrong.

Should I contribute to my pension personally or through my limited company?

As a limited company contractor, you can pay into your SIPP from your after-tax earnings or directly from the company.

If you make payments from your after-tax earnings, you get automatic tax relief at the basic rate of 20%; then you claim back the higher rate (40%) or additional rate (45%) relief via your self-assessment tax return.

If you make payments directly from your limited company, the contributions count as allowable business expenses, reducing the corporation tax you pay. You will also save on Employer’s National Insurance (something you can’t claim back if paying out of after-tax income) and income tax owed on the extra salary/dividend not taken.

Therefore, paying into your SIPP via your limited company is more tax-efficient than paying from your after-tax earnings.

An additional restriction comes with paying into your pension from after-tax earnings. You are restricted to contributing up to 100% of your annual salary into your pension, with dividends not counting to the limit. If you are a limited company contractor paying yourself mainly dividends and taking a small salary of £9,100, the most you can contribute from your after-tax earnings is £9,100.

You could always increase your salary to increase the limit, but this isn’t necessarily tax-efficient.

This salary threshold doesn’t apply to limited company contributions, meaning you can keep taking the £9,100 salary and contribute the total £60,000 into your pension.

Can I contribute to my SIPP via my limited company?

Yes, you can contribute to your SIPP via your limited company. Contributing to your SIPP is an excellent way of saving for retirement and a tax-efficient way of using your business's profits. The company's contributions to your pension are allowable expenses, meaning you reduce your taxable profits and, therefore, your corporation tax liability.

Another benefit of making employer pension contributions via your limited company is that employer pension contributions are not subject to National Insurance.

Outside IR35 Calculator
via Limited Company

Our Outside IR35 calculator looks at the financial implications of being caught by the IR35 tax legislation.

Enter the relevant information in the input fields and our Outside IR35 Calculator will calculate the impact of working Outside IR35 via an umbrella company. You can use this calculator to review a split of your tax and take home pay, as well as a detailed breakdown of your umbrella company workings.

Enter Rate 0 per day edit

Revenue -
Salaries-
Employer’s NI-
Recurring Expenses-
One-off Expenses-
Pension-
Operating Expenses-
Profit Before Tax-
Corporate Tax-
Net Profit-
Distributed Profit-
Your Share of Distributed Profit-
Distributed Profit-
Other Dividends-
Salary-
Other Income-
Total Earnings-
Income Tax-
Dividend Tax-
National Insurance-
Total Taxes-
Student Loan-
Take home0
Calculator Inputs
£

Timing

Tax Year

Tax Code

Other Income

£
£

Student Loan

Pension

£

Allowances

Salaries

£
£

Retained Earnings

£

Joint Ownership

Expenses

£
£
Start

Net Income

£0

Take Home

£0

Total Capital

£0

Outside IR35 Calculator Information

How to use the calculator

There are two ways to use the calculator:

(1) Simplified: We recognise that tax rules can be complicated, so all you need to do is populate the "Contract Rate" and "Frequency" input boxes, and we will do the rest. Our Inside IR35 Calculator has been pre-populated with the most common variables, so once you enter the contract rate, we can provide an accurate estimate of the financial implications of working Inside IR35 via an umbrella company. This is useful for those wanting to calculate an estimate of their take-home pay quickly or those who may not yet have access to all the relevant contract details.

(2) Advanced: Our calculator offers dozens of editable input fields for those wanting more precise control over the variables used in the Inside IR35 calculation. Our calculator uses the calculation methodologies prescribed by HMRC, so adjusting these input fields to represent the actual working arrangements of the Inside IR35 contract in question will provide an accurate breakdown between take-home pay and all relevant deductions.

What do ‘Your Results’ mean?

Net Income
Net income is your total taxable income before any Personal Allowances, less any qualifying pension contributions. Your personal allowance is reduced by £1 for every £2 that your net income is above £100,000. Your allowance is zero if your income is £125,140 or above. If your net income exceeds £150,000, you will likely need to submit a Self-Assessment tax return.

Take Home
Take home is the amount you receive into your personal bank account after deducting all taxes, accrued holiday pay and student loan contributions.

Total Capital
Total capital consists of your take home pay, plus any pension contributions and accrued holiday pay. It is designed to give a more accurate representation of the overall financial gain from a contract and can be compared against the same figure in our Outside IR35 Calculator.

What is IR35?

IR35 is an employment status test determining whether a contract points towards employment or self-employment. It combats tax avoidance by closing loopholes, ensuring contractors working the same way as permanent employees pay the same taxes.

If your contract is 'inside IR35', it points towards employment. Your working arrangements are similar to those of a permanent employee, so HMRC imposes broadly the same income tax and national insurance liabilities

If your contract is 'outside IR35', it points towards self-employment, and you can enjoy the tax efficiency that self-employment brings (as well as all the associated risks).

How does IR35 work?

IR35 applies on a contract-by-contract basis. For each contract, the relevant 'decision-maker' (usually the end client) prepares a Status Determination Assessment ('SDS'). The SDS looks at the engagement contract's wording and the contractor's day-to-day working practices and decides whether IR35 applies.

HMRC offer detailed guidance notes and an online tool to help decision-makers determine whether IR35 is relevant. Third parties also specialise in performing these assessments and providing insurance against a potentially incorrect determination.

Who does IR35 apply to?

Any contractor that is a UK resident for tax purposes has the potential to be impacted by IR35. Although the party responsible for performing the SDS can vary, if you are a contractor paying tax in the UK, you need to consider IR35.

This is a point that often confuses contractors. They mistakenly believe that if a potential client is overseas, then IR35 doesn't apply. Instead, they become responsible for the SDS, decide whether they are inside IR35, and hold the liability should this decision be wrong.

What is a limited company?

A limited company is a type of business with a distinct legal identity, separate from those who own it (the shareholders) and those appointed to manage it (the directors). It is a business structure that limits the liability the company’s owners are exposed to.

In the event the limited company faces financial hardship, the shareholders’ personal assets are not at risk beyond their investment in the business. This is different to a sole trader or general partnership, both types of unincorporated businesses without legal distinction between the owners and the business itself.

As a limited company is a distinct legal entity, it can enter contracts in its own name, employ staff, sue and be sued, and is responsible for its debts and liabilities.

What is a ‘personal services company’?

A personal services company (‘PSC’) is simply another name for a private limited company set up by a contractor to provide their services to clients. They’re most often used in Outside IR35 arrangements, with the company acting as an intermediary between contractor and client.

In most situations, the company is owned 100% by the contractor; they are the sole shareholder and director.

When is a limited company right for me?

In general, a limited company is right for you if:

  • Your contract is Outside IR35, and
  • You intend on contracting for the long term.

If either of these criteria isn’t met, you may want to consider working through an umbrella company.

Why Contractors Don't Work As Sole Traders

Contractors rarely work as sole traders as they usually don't have a choice; most agencies and clients will refuse to engage them. They will stipulate that they require a company (limited or umbrella) to act as an intermediary in the chain of services.

They do this for two main reasons:

  • Similar to IR35, if a client hires a sole trader as a contractor and is subsequently subject to an HMRC investigation over their employment status, they are liable for any additional income tax, National Insurance contributions, penalties, or fines. Most are unwilling to take on this risk.
  • As no intermediary (limited company etc) separates the contractor from the client, a contractor is one step closer to the employer. Therefore, there is a greater risk that an individual trading as a sole trader could look to claim employment rights from the client, a common occurrence in sectors such as construction.

In addition to the above, operating as a sole trader has downsides for the contractors themselves. For a sole trader, there is no distinction between business and individual. You hold personal responsibility for the businesses' debts and may have to sell off personal assets to meet those debts should something go wrong.

Should I contribute to my pension personally or through my limited company?

As a limited company contractor, you can pay into your SIPP from your after-tax earnings or directly from the company.

If you make payments from your after-tax earnings, you get automatic tax relief at the basic rate of 20%; then you claim back the higher rate (40%) or additional rate (45%) relief via your self-assessment tax return.

If you make payments directly from your limited company, the contributions count as allowable business expenses, reducing the corporation tax you pay. You will also save on Employer’s National Insurance (something you can’t claim back if paying out of after-tax income) and income tax owed on the extra salary/dividend not taken.

Therefore, paying into your SIPP via your limited company is more tax-efficient than paying from your after-tax earnings.

An additional restriction comes with paying into your pension from after-tax earnings. You are restricted to contributing up to 100% of your annual salary into your pension, with dividends not counting to the limit. If you are a limited company contractor paying yourself mainly dividends and taking a small salary of £9,100, the most you can contribute from your after-tax earnings is £9,100.

You could always increase your salary to increase the limit, but this isn’t necessarily tax-efficient.

This salary threshold doesn’t apply to limited company contributions, meaning you can keep taking the £9,100 salary and contribute the total £60,000 into your pension.

Can I contribute to my SIPP via my limited company?

Yes, you can contribute to your SIPP via your limited company. Contributing to your SIPP is an excellent way of saving for retirement and a tax-efficient way of using your business's profits. The company's contributions to your pension are allowable expenses, meaning you reduce your taxable profits and, therefore, your corporation tax liability.

Another benefit of making employer pension contributions via your limited company is that employer pension contributions are not subject to National Insurance.