Contract Comparison Calculator, 2026/27

How this is calculated

The contracting figure treats your day rate income as revenue into a limited company, deducts running costs and a director salary set at the 2026/27 personal allowance, then applies corporation tax to the remaining profit before paying the rest out as dividends taxed at the dividend rates. The permanent salary figure simply applies income tax and employee NIC directly to the salary offer.

This is a genuinely different comparison because contracting income passes through corporation tax first, while employment income does not, but contracting also carries running costs, no paid holiday, and IR35 risk that a permanent role does not have.

What the headline numbers don't show

A day rate contract with no paid holiday, sick pay or notice period needs a meaningfully higher day rate than the equivalent hourly value of a salary to be worth the additional risk and administration. Many contractors build in an allowance for unbilled weeks between contracts, professional indemnity insurance and accountancy fees, all of which reduce the effective annual income below the simple day rate times billable days calculation.

Job security also has a real cash value: a permanent role includes statutory redundancy protection and notice pay that a contract does not, which is worth factoring in alongside the tax comparison.

IR35 changes everything

This comparison assumes the contract is genuinely outside IR35, meaning you are not treated as a disguised employee of the client. If the engagement is inside IR35, the fee-payer must deduct tax and NIC broadly as if you were an employee before you receive any money, which closes most of the gap shown here.

Always get an IR35 status determination in writing before assuming outside IR35 tax treatment, particularly for contracts with medium or large end clients where the client itself decides the status.

Is contracting always more tax-efficient than being employed?

Not always. It depends on your day rate, IR35 status, running costs and how many days you can bill each year. A genuinely outside IR35 contract at a strong day rate is usually more tax-efficient, but an inside IR35 contract often leaves you worse off after accountancy fees.

Should I include holiday pay when comparing a contract to a salary?

Yes, contractors are not paid for time off, so a day rate needs to be higher than the pro-rata equivalent of a salary to make up for unpaid holidays, sick days and gaps between contracts.

What running costs should I deduct as a contractor?

Typical costs include accountancy fees, professional indemnity and public liability insurance, business insurance, a proportion of home office costs, and any equipment needed for the contract, all of which reduce the company's taxable profit.

How many billable days should I assume per year?

Many contractors use 220 to 230 days as a starting point, allowing for weekends, bank holidays, annual leave and a gap between contracts, though this varies a lot by sector and demand.