Guide
Outside IR35 take-home: the limited company math
Updated
The standard structure is a small salary plus dividends. On £115,000 of contract revenue the company and you together pay about £42,707 in tax, keeping 62.9%.
The standard structure
Most outside-IR35 contractors pay themselves a salary of £12,570, exactly the personal allowance, so no income tax, and below the employee NI threshold. The company pays £1,135.50 employer NI on it (sole-director companies cannot claim the Employment Allowance), but the salary and NI are corporation-tax deductible. Everything left after corporation tax can be drawn as dividends.
Worked example: £500/day, 46 weeks
| Line | Amount |
|---|---|
| Company revenue | £115,000 |
| Director salary | −£12,570 |
| Employer NI on salary | −£1,136 |
| Taxable profit | £101,295 |
| Corporation tax (19% to £50k, 26.5% marginal above) | −£23,093 |
| Dividends distributed | £78,201 |
| Dividend tax (10.75% / 35.75% after £500 allowance) | −£18,478 |
| Take-home (salary + net dividends) | £72,293 |
The two tax layers explained
- Corporation tax
- 19% on profits to £50,000; 25% above £250,000; between the two, marginal relief produces an effective 26.5% on each pound in the band (gov.uk). A contractor on £500/day sits squarely in that 26.5% band.
- Dividend tax
- After a £500 allowance: 10.75% in the basic band, 35.75% in the higher band, 39.35% in the additional band, the 2026/27 rates (gov.uk). Dividends are paid from post-corporation-tax profit, so the two layers compound.
What moves the number most
- Employer pension contributions, paid by the company, deductible against corporation tax, no dividend tax: the single biggest lever.
- Retaining profit, you do not have to distribute everything each year; leaving profit in the company defers the dividend layer.
- Legitimate expenses, accountancy, insurance, equipment and travel reduce profit before either tax layer.
- A spouse shareholder, a second basic-rate band for dividends, where genuinely appropriate.
This page shows the mechanics, not planning advice. Above £100,000 of personal income the allowance taper adds complexity this model deliberately omits, get an accountant's calculation before making decisions at that level.