Finance contractor on £130,000

Personal Ltd Co. Outside IR35. Age 38. Pension preference: aggressive.

Every figure on this page is computed at build time by the same engines that power the live salary–dividend split, take-home and SIPP optimiser calculators. Inputs come from a single CSV row; outputs come from the engines. No static lookup tables, no hand-coded numbers.

Net cash

£51,935

Pension

£60,000

Effective rate

13.9%

Marginal rate

33.8%

Worked example: Finance contractor, 38, £130,000 of company profit

Picture a finance contractor aged 38 for the 2026/27 tax year, operating through a personal Ltd Co outside IR35, with £130,000 of profit before director pay. The optimisation goal for this profile is maximum net wealth (treating £1 of pension as £1 of cash today).

Running the engine for this exact profile:

Optimum salary: £12,570
Optimum dividend: £45,126
Optimum pension contribution: £60,000
Net cash to the director: £51,935
Net wealth (cash + pension): £111,935
Total tax + NI through the chain: £18,065 (13.9% effective on gross profit)
Money left on the table by the £12,570-salary rule of thumb: £30,963

The vignette is hypothetical but the numbers are not — every figure above was produced by the same engine code that powers the live BracketMath calculators, run at build time on inputs drawn from a single CSV row.

The numbers, line by line

Optimum salary	£12,570
Optimum dividend	£45,126
Optimum pension	£60,000
Net cash (optimum)	£51,935
Net wealth (cash + pension)	£111,935
Rule-of-thumb net cash	£80,972
Rule-of-thumb net wealth	£80,972
Saving vs rule of thumb	£30,963
Effective rate on profit	13.9%
Marginal rate (next £1 dividend)	33.8%

Why this scenario is different

Compared to the closest peer profile — IT contractor at £130,000 — this scenario sits £0 higher on gross income. That moves net cash by +£0, the pension contribution by +£0, and the effective rate by +0%. The effective rate moves only modestly — both scenarios sit inside the same binding tax band. The optimiser shifts £0 of the extraction out of the dividend slice, and £0 out of pension contributions.

Questions this scenario raises

Can I take more than the optimum out of the company?

Of course — every £1 above the optimum simply costs more in tax than it gains in cash. The optimiser tells you the maximum-net-wealth point, not a legal limit. Past the optimum the marginal cost of extraction climbs steeply (60% effective in the PA-taper band, 39.35% additional-rate dividend above £125,140).

How does the Pension Annual Allowance taper work?

Above £260,000 of adjusted income, the £60,000 Annual Allowance reduces by £1 for every £2 over the threshold, down to a £10,000 floor at £360,000 of adjusted income. The taper bites later than the £100k Personal Allowance taper but is similarly punitive on pension contributions specifically.

Are charity donations modelled?

No, not directly. Gift Aid donations reduce adjusted net income (extending the basic-rate band) and are a legitimate way to reclaim the £100k taper marginal. The BracketMath engine does not model them automatically; subtract the gift-aided amount from the "other income" field if you want a closer match.

Should I take the £12,570 standard director salary?

For this row the optimiser settled on a salary very close to the £12,570 standard — confirming the rule of thumb works here.

What happens if I retain profit in the company instead of extracting it?

The optimiser models full extraction (max-extraction mode). Retaining profits inside the company defers the dividend-tax slice but pays corporation tax now. If the retained cash is invested at company-level the returns face corporation tax annually. If the company is later sold and qualifies for Business Asset Disposal Relief, retained profits can be extracted at 10% CGT — but BADR rules and the lifetime allowance keep tightening (currently £1m lifetime cap). For most contractors, extract now is the right call.

Methodology

Income tax, National Insurance and Corporation Tax bands taken from HMRC's 2026/27 rates and allowances tables (gov.uk/.../income-tax; corporation-tax). Pension Annual Allowance and taper rules from Finance Act 2004 / 2023. Trading allowance per ITTOIA 2005 s.783A. Voluntary Class 2 figure (£179.40/yr = £3.45/wk × 52) from HMRC voluntary NI guidance.

Style: 2026/27 tax year throughout; figures rounded to whole pounds in the user-facing prose; effective rates computed as (deductions / gross). The voice is methodological — no first person, no claimed credentials, no marketing fluff.

This page is not personalised advice; for advice regulated by the FCA, consult an adviser registered with the Financial Conduct Authority. See the full disclaimer.