Finance contractor on £160,000

Personal Ltd Co. Outside IR35. Age 40. 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

£66,543

Pension

£60,000

Effective rate

20.9%

Marginal rate

33.8%

The four tax mechanisms acting on this income

For a finance contractor at £160,000 of gross income on the Ltd Co director route in 2026/27, four mechanisms determine the bottom line:

The Personal Allowance — £12,570 of income at 0% income tax. Above £100,000 of adjusted net income the allowance tapers at £1 lost for every £2 over the threshold, fully eroded at £125,140. At £160,000 of relevant income this row sits past the taper — no Personal Allowance.
The £50,270 higher-rate threshold — income tax jumps from 20% to 40% above this number. Dividend tax simultaneously jumps from 8.75% to 33.75%.
National Insurance — on the salary slice only, at 8% employee + 15% employer above the relevant thresholds. The dividend slice attracts no NI — that is the central source of the Ltd Co tax-efficiency edge.
Corporation tax — 19% on profits up to £50,000, 25% on profits above £250,000, with a 26.5% effective marginal rate in the £50k–£250k band (HMRC marginal-relief formula).

Run those four mechanisms in sequence and the bottom line for this row is £66,543 of net cash plus £60,000 into a pension, against £33,457 of taxes / NI / fees lost through the chain — an effective rate of 20.9%.

Where the optimal extraction sits

Corporation tax: £19,118 on £86,295 of post-pay profit.
Employer NI: £1,136 on the £12,570 salary (15% above the £5,000 Secondary Threshold).
Employee NI: £0 on the same salary (8% main band, 2% above £50,270).
Income tax: £0 on the salary (rUK bands, after personal allowance).
Dividend tax: £13,203 on the £67,176 dividend (8.75% / 33.75% / 39.35% bands, stacked above salary).

The numbers, line by line

Optimum salary	£12,570
Optimum dividend	£67,176
Optimum pension	£60,000
Net cash (optimum)	£66,543
Net wealth (cash + pension)	£126,543
Rule-of-thumb net cash	£93,375
Rule-of-thumb net wealth	£93,375
Saving vs rule of thumb	£33,168
Effective rate on profit	20.9%
Marginal rate (next £1 dividend)	33.8%

Why this scenario is different

Compared to the closest peer profile — Software contractor at £160,000 — 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

What is the £500 Dividend Allowance and how is it used?

The first £500 of dividends in 2026/27 is taxed at 0%. It does not reduce taxable income — it sits as a 0% slice within the band schedule. So a basic-rate dividend recipient with £500 of dividends pays £0; with £600 of dividends pays 8.75% × £100 = £8.75. The £500 is consumed in band order (cheapest band first).

What does the "marginal rate" mean on this page?

It is the rate paid on the next £1 of gross income added to this scenario. For this row that figure is 33.8%. The marginal rate is always higher than the average effective rate — it is the right number for "is one more invoice worth it" decisions.

What happens to my pension at age 55 / 57?

From age 55 (rising to 57 from 6 April 2028 per the Finance Act 2021) you can access defined-contribution pensions. The first 25% of the pot is tax-free (the "Pension Commencement Lump Sum"), subject to the £268,275 Lump Sum Allowance. The remainder is drawable at your marginal income-tax rate — but you can phase it across decumulation years to keep most of it within the 20% basic-rate band.

Does it include Scottish income tax?

No. Scotland has its own income-tax band schedule (Starter 19% / Basic 20% / Intermediate 21% / Higher 42% / Advanced 45% / Top 48% for 2026/27). National Insurance and corporation tax are still set at UK-wide rates. A Scotland-specific batch of programmatic pages is planned but is not in this batch.

Why do some columns of the table use cash and others use net wealth?

Net cash is the £ that arrive in your bank account. Net wealth includes pension contributions valued at face (£1 of pension = £1 of wealth, since it will eventually be spent — possibly at a lower marginal rate than today). The optimiser uses a `pensionWeight` parameter so the user can adjust the weight; this page sets it according to the row's `pensionPref` (0 / 0.5 / 1.0 for none / modest / aggressive).

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.