Software contractor on £160,000

Personal Ltd Co. Outside IR35. Age 42. 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%

Worked example: Software contractor, 42, £160,000 of company profit

Picture a software contractor aged 42 for the 2026/27 tax year, operating through a personal Ltd Co outside IR35, with £160,000 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: £67,176
Optimum pension contribution: £60,000
Net cash to the director: £66,543
Net wealth (cash + pension): £126,543
Total tax + NI through the chain: £33,457 (20.9% effective on gross profit)
Money left on the table by the £12,570-salary rule of thumb: £33,168

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	£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 — Cloud architect 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

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.

Why does the optimiser disagree with my accountant?

Often because the accountant is optimising salary first, pension second, dividend as residual — three sequential one-variable problems. The BracketMath optimiser does the joint problem: every (salary, pension) cell evaluated through the full tax stack, accounting for the four-band salary problem, the £100k taper, the CT marginal-relief band, and the Annual Allowance taper simultaneously. The improvement is typically £2k–£35k/yr at typical income levels.

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.