Permanent to contracting calculator, 2026/27
Thinking of leaving permanent employment to contract through your own limited company? This calculator compares your current net salary, including the value of employer pension contributions, against likely contracting take-home pay for 2026/27.
The permanent to contracting calculator runs on the rates and thresholds HMRC has published for the 2026/27 tax year, so the figures you see reflect the position your company is actually filing on rather than a historic set of bands. Change any input and the result recalculates immediately, with no sign-up and nothing sent anywhere.
If you are a director of a UK limited company, use it as a first look before a decision rather than as the decision itself. Permanent salary is taxed as PAYE employment income using 2026/27 bands and NI thresholds; the employer pension percentage is added as extra value not otherwise taxed on the employee. Real company positions bring in other income, reliefs, group structures and prior year adjustments that a single page of inputs cannot see, which is why the workings are written out below under contractor, ir35 & umbrella. Read those, then check the numbers against your own accounts, and speak to us if anything looks materially different from what you expected.
Last reviewed 12 September 2026 for the 2026/27 tax year. Reviewed by Waqas Sagar, Member of ICAEW, Fellow of ACCA, Fellow of AAT.
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Result, 2026/27
Contracting take-home pay
Permanent take-home pay (incl. pension value)
Difference
Gross contract income
Illustration only, figures are based on the rates you have selected and the information entered. Please check your own position with us before acting.
Estimates for the 2026/27 tax year using published GOV.UK rates. Switch between 2026/27 and 2025/26 above.
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.
What this means for your company
Treat the result as a planning figure for the 2026/27 tax year. If it changes what you were about to do, take a director's salary, a dividend, a large asset purchase or a filing decision, check it against your own accounts first. We can review the position with you and confirm the tax treatment before you commit.
Frequently asked questions
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.
Keep going
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