PAYE vs limited company calculator, 2026/27

How this is calculated

The PAYE side taxes the whole gross figure as employment income, applying the 2026/27 personal allowance, basic and higher rate bands, and employee National Insurance at 8% between the primary threshold and upper earnings limit and 2% above it.

The limited company side treats the same gross figure as company income, deducts allowable expenses and a chosen director's salary, applies employer National Insurance on that salary, then charges corporation tax at 19% to 25% (with marginal relief) on the remaining profit before it can be paid out as dividends.

Dividends are taxed on top of the salary using the 2026/27 dividend allowance of £500 and the 10.75%, 35.75% and 39.35% rates, which is why the calculator adds the salary and distributable profit together before working out the extra tax on dividends alone.

Why the outcome varies with income level

At lower income levels the gap between routes is often modest once accountancy costs are factored in, because both the basic rate of income tax and the lower dividend rate are relatively close together. The limited company advantage tends to widen at higher income levels, since corporation tax plus dividend tax on profit above £50,270 is usually lower than employee National Insurance and higher rate income tax on the same amount as salary.

The comparison also depends heavily on how much of the company's profit you actually withdraw. Leaving profit in the company (for a pension, future investment, or to smooth income between good and lean years) defers personal tax entirely, something a straight PAYE salary cannot do.

Non-tax factors to weigh up

This is a tax comparison, not a full employment decision. PAYE employment usually comes with paid holiday, sick pay, pension contributions, employment rights and no IR35 exposure, none of which show up in a pure take-home pay figure but all of which have real value.

Running a limited company brings ongoing filing obligations, accountancy fees, and IR35 risk if the work is genuinely more like employment than self-employment, so this figure should sit alongside, not replace, that wider assessment.

Is a limited company always more tax efficient than PAYE?

Not always. At lower income levels the difference is often small once company running costs are included, and the advantage generally grows as income rises above the higher rate threshold, mainly because dividends avoid National Insurance.

Does this include IR35?

No, this calculator assumes the limited company income is genuinely self-employed consultancy or contracting income outside IR35. If the engagement falls inside IR35, the client or agency deducts tax and NIC broadly as if you were an employee, closing much of the gap.

Should I pay myself a salary or all dividends?

A small salary up to the personal allowance or National Insurance threshold is usually efficient because it is a deductible company expense and often carries little or no personal tax or NIC, with the balance taken as dividends.

Does leaving profit in the company change the comparison?

Yes, retained profit only suffers corporation tax until it is extracted, so directors who do not need to draw all the profit each year can defer personal tax, something not possible with a PAYE salary.