Test engineer contractor on £70,000

Personal Ltd Co. Outside IR35. Age 34. Pension preference: modest.

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

£49,013

Pension

£6,000

Effective rate

21.4%

Marginal rate

33.8%

How much tax does a test engineer contractor on £70,000 actually pay in 2026/27?

Short answer: £14,987 per year — an effective rate of 21.4% on gross company profit.

What's in that number? For a Ltd Co director the figure is the sum of five lines: corporation tax (£9,578), employer NI (£1,136), employee NI (£0), personal income tax (£0) and dividend tax (£4,273). The optimiser placed £12,570 of salary, £40,716 of dividend and £6,000 of employer pension contribution to produce that figure — the lowest total in the searched grid.

What's the marginal rate on the next £1? 33.8%. This is the number that matters for "is one more invoice worth the cost in lost benefits / extra effort?" decisions — it is always higher than the average effective rate.

How does this compare to PAYE employment at the same gross? The PAYE figure for a £70,000 salaried employee in 2026/27 is roughly £23,100 of combined income tax + employee NI. The structure-specific savings come from where the deductions sit, not whether they sit anywhere — see the contractor tax guide for the side-by-side maths.

The numbers, line by line

Optimum salary	£12,570
Optimum dividend	£40,716
Optimum pension	£6,000
Net cash (optimum)	£49,013
Net wealth (cash + pension)	£55,013
Rule-of-thumb net cash	£51,935
Rule-of-thumb net wealth	£51,935
Saving vs rule of thumb	£78
Effective rate on profit	21.4%
Marginal rate (next £1 dividend)	33.8%

Why this scenario is different

Compared to the closest peer profile — Engineering contractor at £70,000 — 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

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.

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.

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.

Why does the optimiser pay a salary above £5,000 if employer NI starts there?

Because beyond the £5,000 Secondary Threshold, each £1 of salary still saves 19–25% of corporation tax and only costs 15% in employer NI plus 8% employee NI — a net 11–17% saving up to the £12,570 Personal Allowance. The 2026/27 optimum for this row is £12,570 of salary, sitting in exactly this regime.

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.

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.