Software contractor on £75,000

Personal Ltd Co. Outside IR35. Age 28. Pension preference: none.

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

£54,370

Pension

£0

Effective rate

27.5%

Marginal rate

33.8%

The decision tree for a software contractor at this income level

A software contractor thinking through "how should I structure this income for tax efficiency" hits the same five branches every time. Walk the tree for this exact scenario (gross £75,000 for 2026/27):

Is the engagement inside or outside IR35? Inside (umbrella) means no dividend extraction, no employer pension dodge, full PAYE deduction. Outside (Ltd Co) means access to the optimiser. This row models the outside-IR35 Ltd Co route.
Are you using the £12,570 Personal Allowance? Yes — fully. No other personal income is in play, so all £12,570 of PA is available to absorb the cheapest slice of structure-specific income.
Are you above the £100,000 PA taper? No — gross sits comfortably below the £100,000 trigger.
How heavily are you using the pension wrapper? Not at all — this scenario optimises for cash today, ignoring the pension wrapper. The pension contribution chosen by the engine for this row: £0.
What is the resulting net cash? £54,370. Net wealth including pension: £54,370.

For the second-order question — what would happen at a different profit level, a different age, or a different pension preference — the same engine drives the salary-dividend split calculator, the take-home (inside vs outside IR35) calculator, and the SIPP optimiser. Each one accepts the inputs of this row as a starting point.

The numbers, line by line

Optimum salary	£12,570
Optimum dividend	£48,801
Optimum pension	£0
Net cash (optimum)	£54,370
Net wealth (cash + pension)	£54,370
Rule-of-thumb net cash	£54,370
Rule-of-thumb net wealth	£54,370
Saving vs rule of thumb	£0
Effective rate on profit	27.5%
Marginal rate (next £1 dividend)	33.8%

Why this scenario is different

Compared to the closest peer profile — Software contractor at £75,000 — this scenario sits £0 higher on gross income. That moves net cash by +£5,356, the pension contribution by −£11,000, and the effective rate by +7.5%. The shift in effective rate is large enough that the binding tax constraint has changed — probably crossing a band boundary. The optimiser shifts £8,085 of the extraction into the dividend slice, and £11,000 out of pension contributions.

Questions this scenario raises

What is the Personal Allowance and how is it used in this calculation?

The Personal Allowance is the first £12,570 of non-savings, non-dividend income on which no income tax is charged. It is consumed from the bottom up: salary first, then dividends. Above £100,000 of adjusted net income the allowance tapers at £1 lost for every £2 of income, fully eroded at £125,140 — producing the well-known 60% effective marginal rate inside that £25,140-wide band.

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.

Should I take the £12,570 standard director salary?

For this row the optimiser settled on a salary very close to the £12,570 standard — confirming the rule of thumb works here.

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.

Is the Employment Allowance available for a single-director company?

No. A company with only one director who is also the sole paid employee cannot claim the £10,500 Employment Allowance (HMRC manual ESM4017). For genuine multi-employee setups it is claimable and the optimiser can model it via the `claimEmploymentAllowance` flag.

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.