Instantly compare your take-home pay as a PAYE employee vs a limited company contractor — including IR35 impact.
Updated for 2026 UK tax rulesIncludes IR35 impactDesigned for contractors & consultants
Your Numbers
£
£
£
IR35 Status
Outside IR35: you can take salary + dividends from your Ltd company, reducing your tax bill significantly.
Director Salary (Ltd)
£
Options
50/50 Spouse Dividend Split
iIf your spouse is a shareholder, you can split dividends 50/50, using their personal allowance and basic-rate band. Can save £1,000–£3,000+/year. HMRC requires genuine share ownership.
Employment Allowance (2nd employee)
iReduces Employer NI by up to £10,500/year. Requires at least 2 employees on payroll. Sole directors only do not qualify.
⚠ Estimates only. Based on HMRC 2026/27 confirmed rates for England, Wales & Northern Ireland. Inside IR35 figure shows Ltd company income treated as deemed employment — similar to PAYE but with some additional costs. Assumes optimal salary + dividend extraction for Ltd outside IR35. Not financial advice — consult an accountant for your specific situation.
Quick Answer
Is it better to be PAYE or a limited company in the UK?
For most UK contractors earning above £50,000 and working outside IR35, operating through a limited company is typically more tax-efficient than PAYE. This is because profits can be taken as dividends, which are taxed at lower rates than salary and attract no National Insurance.
However, if you are inside IR35, the tax benefits are significantly reduced, and PAYE or umbrella employment may result in similar take-home pay. Use the calculator above to compare your specific figures.
Real take-home examples: PAYE vs Ltd (2026/27)
The examples below use optimal director salary (£12,570), no expenses, and outside IR35 status. Click the income amounts in the calculator to model these exactly.
Example 1£50,000 income
PAYE take-home—
Ltd take-home—
Annual saving—
Example 2£80,000 contractor
PAYE take-home—
Ltd take-home—
Annual saving—
Example 3£120,000 contractor
PAYE take-home—
Ltd take-home—
Annual saving—
When Ltd vs PAYE is better
✅ Limited company is more tax-efficient when…
You are outside IR35
You earn £50,000+ per year
You have claimable business expenses
You don't need all income immediately
Your spouse can hold shares and receive dividends
You want to make employer pension contributions
✅ PAYE may be better when…
You are inside IR35
You want simplicity — no admin or filing
Your income is below £40,000–£50,000
You prefer employment benefits and protections
You need statutory sick/maternity pay
Your contract requires PAYE engagement
How IR35 affects your take-home pay
IR35 determines whether HMRC views your limited company work as genuine self-employment or disguised employment. Your position under IR35 can reduce your take-home by 20–30% on the same contract rate.
Inside IR35 vs Outside IR35 — what changes?
Outside IR35 — Ltd company
Take salary + dividends — lower overall tax
No employee NI on dividends
Dividend tax rates: 10.75% / 35.75%
Employer pension contributions tax-free
Full flexibility on when you extract profit
Inside IR35 — deemed employment
All income treated as salary — higher tax
Employee + employer NI both apply
Cannot use dividend extraction
5% expenses allowance removed from April 2024
Similar take-home to PAYE umbrella
⚠ Toggle the IR35 switch in the calculator above to see exactly how your take-home changes between inside and outside IR35 on your income.
How to use this calculator
1
Enter your annual income or contract rate
2
Add expected business expenses (Ltd only)
3
Select your IR35 status — inside or outside
4
Compare PAYE vs Ltd take-home instantly
The calculator uses confirmed 2026/27 UK tax rates including income tax, National Insurance, dividend tax, and corporation tax with marginal relief. Results update instantly as you change any input.
In many cases yes — particularly for contractors outside IR35 earning above £50,000. A limited company director paying themselves a salary of £12,570 and taking the remainder as dividends typically pays significantly less tax than a PAYE employee on the same gross income. However, if you are inside IR35, the tax benefits are significantly reduced.
What is IR35 and how does it affect take-home pay?
IR35 is a UK tax rule that determines whether a contractor should be taxed like an employee. If you are inside IR35, your Ltd company income is treated as employment income, removing most tax advantages. Being inside IR35 can reduce your take-home by 20–30% compared to outside IR35 on the same contract rate.
How much tax do UK contractors pay in 2026/27?
This depends on IR35 status, income level, and expenses. Outside IR35 via a limited company, effective tax rates typically range from 20–35% on income between £50,000–£120,000. Inside IR35 or PAYE, effective rates range from 32–45% at the same income levels. Use the calculator above to see your specific figures.
Can I switch from PAYE to a limited company?
Yes — many UK contractors incorporate a limited company to reduce their tax bill. You should first check your IR35 status for existing contracts, consider admin responsibilities (annual accounts, confirmation statements, payroll), and compare the net saving against accountancy costs. AccTek can handle all of this from £19.99/month.
What is the optimal director salary for 2026/27?
For most sole-director companies, the optimal salary is £12,570 (equal to the personal allowance). This avoids income tax on the salary. As the only director you typically cannot claim Employment Allowance, so employer NI above £9,100 is a real cost. Some directors prefer £9,100 to eliminate employer NI entirely.
What are the dividend tax rates for 2026/27?
From 6 April 2026, dividend tax rates are: 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. The dividend allowance remains at £500 per year.
Want to maximise your take-home pay?
Get a personalised breakdown of your tax position and the opportunities to save — from AccTek's qualified UK accountants.
AccTek is a member firm of the Institute of Certified Practising Accountants (ICPA). Our accountants have a wide range of qualifications and accreditations from trusted professional bodies such as the AAT, ICPA, and ACCA.
We use cookies to improve your experience and analyse website performance.
Functional
Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
