How to compare a contract with a permanent job
Quick answer: To compare a contract with a permanent job, enter the permanent offer, enter the day rate and the days you'll bill, check the umbrella and company costs, compare what you keep and check the IR35 status with the client.
- Enter the permanent offer. Salary, bonus, your pension and the employer's, paid days off and any company sick pay.
- Enter the day rate and the days you'll bill. There are 260 weekdays a year. Take off holidays, bank holidays, sick days and gaps between contracts: 220 is a common planning figure, fewer if you expect breaks.
- Check the umbrella and company costs. Ask the umbrella for its weekly margin. For a limited company, add yearly expenses and the accountant's fee.
- Compare what you keep. Each column shows take-home pay, the pension paid in for you and the total. The line-by-line breakdown shows every tax and cost.
- Check the IR35 status with the client. The client decides whether the contract is inside or outside IR35 (your own company decides for a small client). HMRC's CEST tool shows how the rules are applied.
Inside IR35: why the day rate shrinks
Through an umbrella company, the day rate has to pay the employer's costs before it becomes your salary: the umbrella's margin, employer National Insurance at 15% above £5,000, the Apprenticeship Levy at 0.5% and the minimum employer pension. Holiday pay comes out of the same money too (12.07% rolled up), so a day off is a day you don't bill. Then Income Tax and NI come off as for any employee.
Outside IR35: salary plus dividends
Your company pays you a small salary (£12,570 or £6,708, the lowest that still earns a State Pension year) and Corporation Tax on the profit: 19% up to £50,000, 25% from £250,000, with marginal relief in between. What's left is paid as dividends, taxed at 10.75%, 35.75% or 39.35% in 2026/27 after a £500 allowance. A sole director can't claim the Employment Allowance.
Contractor or employee CV?
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Frequently asked questions
Who decides if I'm inside or outside IR35?
For a medium or large client in the UK, the client decides and gives you a Status Determination Statement. For a small client, your own company decides. HMRC's Check Employment Status for Tax (CEST) tool at gov.uk shows how the tests are applied. This calculator doesn't decide your status.
Which rates does it use?
The 2026/27 UK rates from GOV.UK: the £12,570 personal allowance with the £100,000 taper, Scottish and rest-of-UK bands, 8% and 2% employee NI, 15% employer NI above £5,000, student loan thresholds, Corporation Tax 19% to 25%, and the 2026/27 dividend rates of 10.75%, 35.75% and 39.35%.
Does it include holiday pay inside IR35?
Yes. The umbrella's gross pay already contains rolled-up holiday pay of 12.07%, so it isn't extra money: when you take a day off, you don't bill it. The permanent job's paid days off are shown alongside for that reason.
Does it assume I take all the profit out of my company?
Yes, all profit after Corporation Tax is paid as dividends in the same year, so the numbers compare like with like. Keeping money in the company, or paying more into a pension from it, can lower the tax for that year.
Is this tax advice?
No. It's an estimate to help you compare offers. VAT, associated companies, expenses rules and your other income can change the result, so speak to an accountant before you set up a company or sign a contract.