Employed vs Self-Employed Calculator, 2026/27

How this is calculated

As an employee, the full gross figure is treated as salary, taxed through the standard income tax bands and subject to employee National Insurance at 8% between the primary threshold and the upper earnings limit, and 2% above it, with tax and National Insurance deducted automatically through PAYE.

As a self-employed sole trader, the same gross income is first reduced by legitimate business expenses to arrive at taxable profit, which is then taxed through the same income tax bands, but National Insurance is charged as Class 4 at 6% and 2% instead of the employee rates, and is paid through self-assessment rather than deducted at source.

The calculator runs both calculations side by side on the same headline income figure, allowing for expenses in the self-employed case, to show the difference in take-home pay between the two ways of earning the same money.

Beyond the numbers

Self-employment often produces a modestly better take-home figure, mainly because Class 4 National Insurance rates are lower than employee rates and expenses reduce taxable profit, but this needs to be weighed against the loss of employment rights such as sick pay, holiday pay, pension contributions and redundancy protection.

Employers also bear the cost of employer National Insurance and pension auto-enrolment on an employee's salary, which is why some engagements are structured as self-employment or via a limited company, though HMRC applies strict tests to decide whether a role is genuinely self-employed.

When a limited company changes the picture

Operating through a limited company introduces a further layer, corporation tax on profits and then income tax on dividends when extracted, which for many contractors produces different results again, especially once IR35 status is considered for contracts that look like employment.

Anyone genuinely choosing between routes for the same work should model all three, employed, self-employed and limited company, since the best structure depends on income level, expenses, and how much is drawn out of the business each year.

Is self-employment always more tax efficient than being employed?

Not always, but Class 4 National Insurance rates are lower than employee National Insurance rates, and business expenses reduce taxable profit, so for the same gross income self-employment often produces a higher take-home figure before considering lost employment rights.

What am I giving up by being self-employed?

Statutory sick pay, holiday pay, employer pension contributions, redundancy rights and various other statutory protections do not apply to the genuinely self-employed, which is a real cost even though it does not show up in a tax calculation.

Does this apply to contracting through a limited company too?

Not directly. A limited company involves corporation tax on profits and then personal tax on dividends or salary drawn out, which usually gives a different result to straightforward self-employment, so it is worth comparing separately.

How does HMRC decide if I am really self-employed?

HMRC looks at factors such as control over how work is done, whether you can send a substitute, financial risk, and whether you provide your own equipment, rather than simply how you are labelled in a contract.