Senior 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%

Step by step: how the engine arrived at the bottom line

The joint optimiser ran a grid search over (salary, pension) — salary in £100 steps from £0 to £60,000, pension in £500 steps from £0 to the £60,000 Annual Allowance — and evaluated each combination through the full tax stack. Here is the step-by-step trace that produced the optimum for a senior it contractor at £250,000 of company profit:

Salary chosen: £5,000. Sits between the £5,000 Secondary Threshold and the £12,570 Personal Allowance (paying employer NI but no income tax).
Employer NI on salary: £0 (15% above the £5,000 Secondary Threshold).
Pension chosen: £60,000 as an employer contribution — CT-deductible, no NI either side, no income tax until drawdown.
Pre-CT profit: £185,000 = company profit minus salary, minus employer NI, minus pension contribution.
Corporation tax: £45,275 (regime: marginal).
Dividend extraction: all post-CT profit paid out — £139,725.
Personal taxes: employee NI £0 on salary; income tax £1,000 on salary; dividend tax £36,893 on the dividend (after the £500 Dividend Allowance and stacked above salary in the band schedule).
Net cash: £106,832. Net wealth (cash + pension): £166,832.

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 — IT contractor 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

Are dividends "double taxed" because corporation tax was already paid?

Yes — but the dividend tax rates (8.75% / 33.75% / 39.35%) are set lower than the equivalent income-tax rates (20% / 40% / 45%) precisely to account for the corporation tax already paid at company level. The combined CT + dividend tax stack is usually still cheaper than the salary stack of income tax + employer NI + employee NI for any single £1, which is why the optimiser puts most extraction through dividends.

How do I avoid the 60% taper?

For a salaried employee: salary sacrifice into pension. For a Ltd Co director: employer pension contribution. For a sole trader: personal pension contributions (which reduce adjusted net income). The taper-zone marginal of 60% means each £1 of pension contribution effectively costs the saver 40p of foregone cash — the strongest tax shelter the UK code currently offers.

Should I take dividends now or wait until next tax year?

Tax-year-end timing matters: a dividend declared in March 2027 is taxed at 2026/27 rates; one declared in April 2027 falls into 2027/28 (potentially still in the same calendar year). If your 2026/27 personal income is bunched in basic-rate territory and 2027/28 will be in higher-rate, accelerate. If the reverse, defer. The mathematical structure is "level the tax-band utilisation across years if income is volatile."

Are the engine assumptions documented anywhere?

Yes — every constant lives in src/lib/tax/constants.ts with a source-URL comment. Every engine function is unit-tested against HMRC examples (180+ test cases). The full methodology is at /about and the per-engine assumptions are spelled out at the foot of each calculator.

How is corporation tax calculated in this scenario?

The taxable post-pay profit falls in the £50,000–£250,000 "marginal-relief band". Corporation tax is computed as 25% of taxable profits minus marginal relief, producing an effective marginal rate of 26.5% on each pound between the two thresholds.

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.