Permanent to contracting calculator, 2026/27

How this is calculated

The permanent side applies standard PAYE income tax and employee National Insurance to your gross salary using the personal allowance and basic/higher rate bands for the year, then adds the cash value of employer pension contributions, which are a real part of your remuneration even though you never see them in your payslip.

The contracting side assumes billable days at your day rate, less unpaid gaps between contracts, holidays and admin time, converted into a limited company structure with a low salary and dividends, taxed using current corporation tax, dividend allowance and dividend tax rates.

The comparison is deliberately conservative on the contracting side by only counting billable days, since unbilled time is the single biggest difference contractors underestimate when switching from permanent work.

What permanent employment gives you that contracting does not

Statutory sick pay, holiday pay, notice periods, redundancy rights, employer pension contributions and, in many cases, private medical insurance or other benefits all have a real cash value that contracting does not automatically replace. A realistic day rate needs to price in gaps between contracts, which most permanent-to-contract calculators ignore.

Contractors also carry more risk: contracts can end with little notice, and the off-payroll working rules mean genuinely outside-IR35 work is not guaranteed to always be available at your target rate.

Setting a realistic day rate

A common rule of thumb is to divide your target annual income by roughly 220 working days, then increase it by 20 to 30% to cover gaps between contracts, employer's National Insurance, pension contributions you now fund yourself, accountancy fees and reduced statutory protections.

Use the target income calculator alongside this one to work backwards from the take-home pay you actually need.

How many billable days should I assume per year?

Most established contractors budget for 200 to 220 billable days out of roughly 260 working days, allowing for holidays, sickness, admin time and gaps between contracts. New contractors should be more conservative, especially in the first year.

Does this include the risk of contracts ending early?

No, this is a steady-state comparison assuming your assumed number of billable days actually happens. Contract risk should be reflected in your day rate and in keeping a cash buffer for gaps between assignments.

What about employer pension contributions I would lose?

The calculator adds the cash value of your current employer pension contribution to your permanent take-home pay for comparison, since as a contractor you would need to fund an equivalent contribution yourself, usually through employer contributions from your own limited company.

Is contracting always more tax efficient than permanent employment?

Often, but not always, and the gap has narrowed as dividend tax rates have risen. If your prospective contract would be inside IR35, take-home pay is usually similar to, or slightly below, an equivalent permanent salary once accountancy costs are included.