Weighing up a permanent salary against a contract day rate? Compare real take-home for 2026/27 — net of tax and National Insurance, with the value of the pension and paid holiday you give up as a contractor, and the day rate you'd need to break even. Inside or outside IR35.
Built & maintained by Marcus, freelancer·Figures from HMRC·Last updated June 2026
⚠️ Updated for 2026/27: employer NI is 15% above £5,000, dividend tax 10.75% / 35.75%, employee NI 8% / 2%. A headline day rate is not the same as a salary — once you subtract unpaid holiday, lost employer pension and your own tax, the gap is smaller than it looks. This tool counts all of it.
£12,570
Tax-free personal allowance
28 days
Paid holiday an employee gets, a contractor doesn't
3%
Employer pension a contractor self-funds
8% / 2%
Employee National Insurance rates
£/ yr
£/ day
days
£/ yr
Permanent Employee
Net take-home pay
£—
— / month · — effective tax
Gross salary—
Income tax—
Employee NI—
+ Employer pension (to your pot)—
Contractor
Net take-home pay
£—
— / month · — effective tax
—more take-home per year
—
per month
—
keeps more cash
—
Take-home compared
Employee — net take-home
—
Contractor — net take-home
—
Contractor — gross contract fees
—
⚠️ Estimate only. Headline figure is net cash take-home before any voluntary pension. Employer pension (auto-enrolment minimum 3% of qualifying earnings £6,240–£50,270) is shown separately as added value, not cash. Outside-IR35 model: £12,570 director salary plus dividends, marginal corporation tax, no Employment Allowance (sole director). Inside-IR35 model: umbrella PAYE after employer NI, apprenticeship levy and margin. Excludes student loans, expenses and voluntary pension. Not tax advice — consult a qualified accountant. 2026/27 rates.
The day rate you'd need to match your £50,000 salary's net take-home, using your billable days (220) and region (England) from the first tab.
Break-even rate — outside IR35
£—
own limited company
Break-even rate — inside IR35
£—
umbrella / PAYE
—
Day rate to match a salary — reference table
Permanent salary
Net take-home
Day rate (outside IR35)
Day rate (inside IR35)
⚠️ Break-even matches net cash take-home only. To also replace the employer pension, paid holiday and job security an employee gets, contractors typically aim for a further 15–30% on top. Table uses your billable days, region and cost from the first tab; outside-IR35 assumes a £12,570 salary plus dividends. Estimates, 2026/27 rates.
Line-by-line for a £50,000 salary versus a £400/day contract (outside IR35, England), based on the first tab.
Permanent Employee
Gross salary—
Income tax (total)—
Employee NI 8% to £50,270, then 2%—
Net take-home—
+ Employer pension 3% of qualifying earnings—
Contractor — Outside IR35
Net take-home—
⚠️ Outside-IR35 keeps a £12,570 director salary (within the personal allowance, so no income tax or employee NI) plus dividends taxed at 10.75% / 35.75% / 39.35% above the £500 allowance; corporation tax uses 2026/27 marginal relief. Inside-IR35 runs the contract rate through umbrella PAYE. Figures rounded.
Contractor vs Employee: What Actually Changes?
On paper a contract day rate looks far bigger than a salary. £400 a day sounds like six figures next to a £50,000 job. But the two aren't measured the same way, and three things close the gap fast.
You only get paid for days you bill. An employee is paid for the whole year — holiday, bank holidays and sick days included. A contractor on £400/day only earns when working, typically around 220 billable days once you subtract holiday, public holidays, illness and gaps between contracts. That alone turns a "£104,000" headline (260 days) into about £88,000.
You carry costs an employer normally absorbs. Outside IR35 you pay corporation tax and dividend tax through your own company, plus an accountant. Inside IR35 through an umbrella, employer's National Insurance at 15%, the apprenticeship levy and the umbrella's margin all come out of your assignment rate before you're taxed as an employee.
You lose paid benefits. No employer pension, no paid holiday, no sick pay, no notice period. These are worth real money. The calculator above counts the cash take-home; the day rate you actually need to come out ahead is usually higher than people assume.
The Hidden Cost of Going Contract
When you leave a permanent role you give up benefits your employer funded on top of your salary. To compare fairly, put a number on them:
Employer pension — worth ~£1,300+ a year.Auto-enrolment requires a minimum 3% employer contribution on qualifying earnings (£6,240–£50,270). On a £50,000 salary that's about £1,300 straight into your pension; a contractor funds 100% of their own.
Paid holiday — 28 days you no longer get paid for.Employees get 5.6 weeks (28 days) statutory paid leave. At a £400 day rate, that's roughly £11,200 of working time a contractor simply doesn't earn.
Employer National Insurance — 15% the employer pays for you.Your employer pays 15% NI on salary above £5,000. Inside IR35, that cost effectively shifts onto you out of the contract rate.
Sick pay, notice and redundancy — gone.Employees have statutory sick pay, notice periods and redundancy rights. A contract can usually be terminated at short notice with nothing afterwards, and bench time between contracts is unpaid.
Training, equipment and downtime — all on you.Laptops, software, courses and the time spent finding the next contract come out of your own pocket rather than a budget.
Rule of thumb: the lost benefits and added risk are commonly valued at 20–30% of salary. That's why experienced contractors target a day rate well above the simple "salary ÷ billable days" figure.
How Much More Should a Contractor Earn?
Start with the break-even day rate — the rate that matches your salary's net take-home in cash. The Break-Even tab works it out for your figures; as a guide, a £50,000 salary in England comes out at roughly £237/day outside IR35 or £271/day inside IR35 over 220 billable days.
Then add for everything cash alone misses: the employer pension you now self-fund, unpaid holiday and sick days, and the risk of bench time between contracts. A common target is the break-even rate plus 15–30%. On the £50,000 example that points to roughly £280–£350/day outside IR35 to genuinely beat the permanent package, not just match its take-home.
The flip side: when a contract pays well above that — as £400/day outside IR35 does in the default above — contracting can leave you meaningfully ahead, provided you keep utilisation high and manage the dry spells.
Inside vs Outside IR35: Why It Matters Here
IR35 decides whether HMRC treats your contract as genuine self-employment or "disguised employment". Outside IR35, you can pay yourself a small salary plus dividends through your own limited company — the most tax-efficient route, and the one that beats a salary most clearly. Inside IR35, you're taxed essentially like an employee, usually through an umbrella company, so your take-home lands much closer to the permanent figure — but still without the holiday, pension or security an employee gets.
Because status can change your take-home by several thousand pounds, set the route correctly in the calculator. To dig into a single contract, use our IR35 calculator and umbrella take-home calculator.
Bottom line: if you value certainty, benefits and zero admin, a permanent salary is worth more than its headline. If you can secure a high day rate, keep utilisation up and want the flexibility, contracting can pay more — especially outside IR35.
Frequently Asked Questions
Is contracting better paid than being a permanent employee?
Often yes on headline cash, but by less than the day rate suggests. A contractor only earns on billable days (around 220 a year), pays their own employer costs and gets no paid holiday, pension or sick pay. Once you count those, a contract usually needs to pay 20–30% more than the "salary ÷ days" rate to genuinely beat a permanent job. Above that, contracting — especially outside IR35 — can leave you clearly ahead.
What day rate is equivalent to a £50,000 salary?
To match the net take-home of a £50,000 England salary (about £39,500) over 220 billable days, you'd need roughly £237/day outside IR35 or £271/day inside IR35. That only matches the cash, though — to also replace the employer pension and 28 days paid holiday you give up, aim 15–30% higher, around £280–£350/day. Use the Break-Even tab for your own salary and billable days.
How many billable days should I assume in a year?
There are about 260 weekdays a year. Take off bank holidays (8), a few weeks of holiday, the odd sick day and realistic gaps between contracts, and most contractors plan on roughly 220 billable days — some budget as low as 200 to be safe. The fewer days you bill, the higher your day rate has to be to match a salary, which is why the calculator lets you set this directly.
Do contractors get holiday pay and a pension?
Not from a client. A permanent employee gets 28 days statutory paid holiday and an employer pension (minimum 3% of qualifying earnings) on top of salary. A contractor through their own company or an umbrella funds all of this themselves — every day off is unpaid and every pension contribution comes from their own take-home. That's a core reason a like-for-like day rate has to be higher than a salary.
How does inside vs outside IR35 change the comparison?
A lot. Outside IR35 you draw a small salary plus dividends through your own limited company, which is the most tax-efficient route and beats a salary most clearly. Inside IR35 you're taxed like an employee — usually via an umbrella that also deducts employer NI (15%), the apprenticeship levy and its margin first — so your take-home is much closer to the permanent figure, but you still get none of the employee benefits. Set the route in the calculator, or see our IR35 calculator.
Is a contract day rate just my salary divided by working days?
No, and using that figure will leave you underpaid. Salary ÷ 260 ignores that you won't bill every weekday, that you now pay your own employer NI and admin, and that you've lost paid holiday, pension and job security. A proper equivalent starts from the break-even take-home rate and then adds a margin for benefits and risk. The calculator does both for you.
Should I go contracting or stay permanent?
Run your real numbers above first. Contracting tends to win when the day rate is high, the contract is outside IR35, and you can keep utilisation up; permanent tends to win when you value stable income, benefits and no admin, or the only contracts available are inside IR35 at modest rates. If you do go limited, our sole trader vs limited company calculator and UK self-employed tax calculator help with the next decisions.
Sources & how we calculate
For the employee we apply 2026/27 income tax (England/Wales/NI or Scottish bands, with the personal allowance taper above £100k) and employee Class 1 National Insurance at 8% / 2%, then add the employer's minimum 3% auto-enrolment pension on qualifying earnings as separate value. The contractor's gross is your day rate times billable days. Outside IR35 we take a £12,570 director salary plus dividends, charge employer NI, marginal corporation tax (19%–26.5%) and dividend tax of 10.75% / 35.75% / 39.35%, and deduct your accountant cost. Inside IR35 we run the rate through umbrella PAYE — employer NI (15%), apprenticeship levy (0.5%) and margin, then employee income tax and NI. The break-even rate is solved numerically. Everything runs in your browser from the figures you enter.
Estimate only, not tax or financial advice. Your real position depends on your billable days, IR35 status, expenses and personal circumstances. Speak to a qualified accountant before deciding between a contract and a permanent role.
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