IT contractor on £250,000

Personal Ltd Co. Outside IR35. Age 55. 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

£106,832

Pension

£60,000

Effective rate

33.3%

Marginal rate

39.4%

What the popular advice gets wrong at this income

Every accountancy thread, IR35 forum and contractor podcast has its own simple rule for handling a it contractor at this income level. The popular rules are:

"Just take a £12,570 salary and dividend the rest" — works between roughly £40k and £80k of profit; breaks down above the £100,000 PA-taper cliff and around the £50k–£250k corporation-tax marginal-relief band.
"60% goes to the tax man on anything over £100k" — true within the £25,140-wide taper band, but it is the marginal rate, not the average. Most contractors hear "60%" and assume their whole income is being taxed at that rate, which is wrong.
"Pension contributions don't help if you only have a Ltd Co" — wrong. Employer pension contributions are deductible against corporation tax, attract no NI either side, and are not personal income — making them the single most powerful lever in the high-rate / taper bands.
"The optimal salary is exactly the secondary threshold" — historically true; in 2026/27 the secondary threshold (£5,000) is so low that ignoring the £5k–£12,570 region is leaving free Personal Allowance on the table.

For a it contractor at £250,000 of gross, the BracketMath optimiser disagrees with at least one of those rules — that's why we built it.

Specifically, the joint optimum at this profit level is £5,000 of salary, £139,725 of dividend, £60,000 of employer pension contribution. The rule-of-thumb baseline (£12,570 salary, no pension, max dividend) produces only £133,438 of net wealth — a shortfall of £33,394 versus the joint optimum.

The numbers, line by line

Optimum salary	£5,000
Optimum dividend	£139,725
Optimum pension	£60,000
Net cash (optimum)	£106,832
Net wealth (cash + pension)	£166,832
Rule-of-thumb net cash	£133,438
Rule-of-thumb net wealth	£133,438
Saving vs rule of thumb	£33,394
Effective rate on profit	33.3%
Marginal rate (next £1 dividend)	39.4%
Years to age-57 pension access	2
Annual pension contribution (this row)	£60,000
Projected pot at 57 (5% real, single-path)	£123,000
Sustainable income @ 4% SWR	£4,920/yr

Why this scenario is different

Compared to the closest peer profile — SaaS founder at £250,000 — 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

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).

Why is the effective rate lower than the headline tax brackets?

Because the headline 20% / 40% / 45% rates apply only to the income slice in each band — not the whole income. The Personal Allowance shelters the first £12,570 at 0%; the basic-rate band only charges 20% on the next £37,700; and so on. The effective rate on the entire income is the weighted average of every slice — typically much lower than the headline number people quote.

Is the State Pension worth deferring?

For State Pensions claimed after 6 April 2016, deferring uplifts the entitlement by 1% for every 9 weeks deferred (about 5.8% per year). The break-even is approximately 17 years — if you expect to live materially longer than 17 years after State Pension Age, deferring marginally wins. Most people claim on time and invest the cash instead.

What if I have rental income alongside this self-employment?

Add it to the `otherIncome` field of the calculator. Property income is taxed at non-savings, non-dividend rates (so stacks alongside salary in the band schedule). The first £1,000 of rental income can also be sheltered by the separate Property Allowance under FA 2017 s.16.

How do I model my partner's income alongside mine?

BracketMath models a single tax entity — there is no joint-couple calculation. For couples, the practical approach is to run each partner separately and consider income-splitting strategies (employing the lower-earning spouse for genuine work performed, sharing dividends if both are shareholders, etc). The Ltd Co spousal share pattern is sketched in /guides/ltd-company-director-tax.

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.