Software contractor on £125,000

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

£49,500

Pension

£60,000

Effective rate

12.4%

Marginal rate

33.8%

The £100,000 cliff catches almost every higher-earning contractor

Before the numbers, a warning: a software contractor at £125,000 of company profit for 2026/27 is sitting close to one of the UK tax code's sharpest cliffs.

The £100,000 Personal Allowance taper hits any individual whose adjusted net income (broadly, total taxable income before the PA itself) crosses £100,000. For every £2 over the threshold, £1 of Personal Allowance is lost, fully eroded at £125,140. The effective marginal rate inside this £25,140-wide band is 60% (40% income tax on the next £1, plus 40% × 50p of lost PA = 20p of additional tax). This row sits inside that band.

For a Ltd Co director, the standard mitigation is to push the next £1 of extraction into pension (employer contribution, no income tax, no NI, no Personal Allowance interaction) rather than dividend. For PAYE / sole-trader earners, salary sacrifice into pension achieves the same thing.

The numbers for this specific scenario

Bottom line for a software contractor at £125,000 of gross income: net cash £49,500; pension £60,000; effective rate on gross 12.4%.

The numbers, line by line

Optimum salary	£12,570
Optimum dividend	£41,451
Optimum pension	£60,000
Net cash (optimum)	£49,500
Net wealth (cash + pension)	£109,500
Rule-of-thumb net cash	£78,717
Rule-of-thumb net wealth	£78,717
Saving vs rule of thumb	£30,784
Effective rate on profit	12.4%
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 £5,000 lower on gross income. That moves net cash by −£2,435, the pension contribution by +£0, and the effective rate by −1.5%. The effective rate moves only modestly — both scenarios sit inside the same binding tax band. The optimiser shifts £3,675 of the extraction out of the dividend slice, and £0 out of pension contributions.

Questions this scenario raises

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.

Is the figure on this page net of accountancy fees?

Yes when relevant — the take-home calculator deducts an umbrella fee for inside-IR35 rows (£1,500/yr assumed) and the optimiser allows for an arbitrary annual business expense pot (£3,500/yr default for Ltd Co rows). Sole-trader rows assume the higher of £800/yr or 5% of turnover as actual business expenses, which approximates a low-overhead service business.

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.

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.

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.