Contractor vs Permanent Salary Calculator
Compare contractor day rate vs permanent salary. See the premium needed to match perm benefits.
Last updated: April 2026 · Source: GOV.UK – Check Employment Status for Tax
Permanent (total package)
£64,730.77
£248.96/day effective
Contract (gross)
£88,000.00
£400/day x 220 days
Contract premium over perm
+61%
Day rate should be 30-50% above perm equivalent to account for no holiday, sick pay, pension, or job security
Perm benefits included:
Pension (£2,750.00) + Holiday (£5,923.08) + Sick Pay (£1,057.69) = £9,730.77 on top of salary
Disclaimer
This calculator is provided for informational purposes only and should not be considered as financial or tax advice. All calculations are performed locally in your browser — no personal data is collected or sent to our servers. Rates and thresholds are sourced from HMRC and GOV.UK and are updated for the current tax year. Always verify results with HMRC or consult a qualified professional before making financial decisions.
How It Works
Comparing contractor and permanent employment requires normalising both options to the same measure: annual take-home pay. For a contractor operating through a limited company, start with the day rate multiplied by the estimated number of working days per year (typically 220–230, minus holidays and bench time). From this gross revenue, deduct Corporation Tax, salary, employer NI on that salary, pension contributions, accountancy fees, insurance, and any other business costs.
The contractor's take-home is then the combination of a tax-efficient salary (usually £12,570 to use the personal allowance) plus dividends drawn from post-tax profits. Dividends are taxed at 8.75% basic rate, 33.75% higher rate, and 39.35% additional rate after the £500 dividend allowance. IR35 status is critical: if inside IR35, the tax advantage largely disappears because deemed employment taxes apply.
For the permanent role, total compensation includes base salary, employer pension contributions (minimum 3% under auto-enrolment), paid holidays (typically 25 days plus 8 bank holidays), sick pay, and any benefits such as health insurance, share schemes, or bonuses. The permanent employee also gains employment rights—redundancy protection, statutory maternity/paternity pay, and unfair dismissal rights—which have real economic value that does not appear on a payslip.
Contractor at £450/day vs permanent at £75,000
- Contractor gross revenue: £450 × 220 working days = £99,000.
- Deduct: salary £12,570 + employer NI £690 + Corporation Tax on £85,000 profit at 19% (£16,150) + accountant £1,500 + insurance £600 = £31,510 total deductions.
- Post-tax profit available as dividends: approximately £67,490. Dividend tax at blended rate ≈ £8,700.
- Contractor annual take-home: approximately £71,360.
- Permanent take-home after IT + NI on £75,000 salary: approximately £54,100, plus employer pension worth £2,250 and 33 days paid leave.
Frequently Asked Questions
- What does the Contractor vs Permanent Salary Calculator do?
- Compare contractor day rate vs permanent salary. See the premium needed to match perm benefits. All calculations are performed in your browser using official UK rates and thresholds.
- Is this suitable for my business?
- This calculator provides general estimates based on standard UK business rates and rules. Every business is different — consult your accountant for advice specific to your circumstances.
- Does this use 2025/26 tax rates?
- Yes. All rates and thresholds are based on the current 2025/26 UK tax year. Corporation Tax main rate is 25% for profits over £250,000, with a 19% small profits rate.