Contractor Calculator for Limited Companies, 2026/27

How this is calculated

Contract income is first reduced by allowable business expenses and the director's salary, along with the employer NIC due on that salary, since both are deductible costs for corporation tax purposes. Corporation tax is then applied to the remaining profit, and whatever is left after that tax is treated as available to pay out as dividends.

Personal tax is calculated on the salary using the 2026/27 personal allowance and bands, then on the dividends using the dividend allowance and dividend tax rates, stacked on top of the salary. The overall effective tax rate compares total tax and NIC paid, at both company and personal level, against the original contract income.

Costs this calculator doesn't include

VAT is not included because it is usually recovered or passed through to the client rather than being a genuine cost, though the flat rate scheme can create a small VAT profit or cost depending on your sector and expenses. The employment allowance, which can reduce employer NIC by up to a set annual amount, is also excluded because single-director companies without other employees are not eligible for it.

Pension contributions made directly by the company are a highly tax-efficient alternative to dividends for surplus profit, since they reduce corporation tax without triggering personal tax at all, and are worth considering once immediate income needs are met.

Managing the numbers through the year

Because corporation tax is calculated on annual profit, contractors with variable monthly income should keep a reserve for the corporation tax bill rather than distributing every pound of profit as dividends throughout the year, to avoid a cash flow squeeze nine months after the year end.

Keeping dividends properly documented with board minutes and dividend vouchers each time a payment is made protects against HMRC treating a payment as disguised salary or an unlawful distribution if profits later turn out to be insufficient.

What expenses can a contractor limited company claim?

Typical allowable expenses include accountancy fees, business insurance, home office costs, travel to temporary workplaces, training relevant to the contract, and equipment such as a laptop, all of which reduce taxable profit before corporation tax.

Should I take a bigger salary or more dividends?

It depends on your total income and other allowances, but salary above the personal allowance and secondary NIC threshold usually costs more in tax and NIC combined than an equivalent dividend, so most contractors keep salary low and top up with dividends.

How much should I set aside for corporation tax?

A common approach is to transfer roughly 19% to 25% of monthly profit into a separate savings account as you go, so the corporation tax bill due nine months after the year end does not come as a cash flow surprise.

Does this calculator account for VAT?

No, VAT is excluded because it is usually charged to and recovered from clients rather than being a real cost to the company, though flat rate scheme users may see a small additional profit or cost depending on their expense levels.