TURNING EMPLOYMENT INTO A LIMITED COMPANY CONTRACT
This shows how converting a standard £45,000 salaried role into a limited-company contract can benefit both sides – giving the worker higher net income and the employer lower overall cost, while keeping the arrangement simple, compliant, and commercially fair.
SNAPSHOT
Employee take-home (PAYE £45,000) ............. ≈£35,920.
Employer all-in cost for £45,000 PAYE .......... ≈£56,000.
Contract fee as a limited company .............. £52,000.
Contractor take-home on £52,000 ................ ≈£40,700.
Your cash uplift vs PAYE ........................ ≈+£4,800.
Employer saving vs PAYE all-in ................. ≈£4,000.
EMPLOYER / CLIENT VIEW
They swap unpredictable add-ons for a fixed £52,000 fee and lose holiday, sick-pay and payroll admin liabilities.
They avoid Employer NI on a £45,000 salary and pension auto-enrol duties.
ASSUMPTIONS (ROUNDED)
Personal Allowance £12,570; basic income tax 20%.
Employee NI 8% main rate; Employer NI 15% above a small threshold.
Corporation Tax 19% small profits rate.
Dividend allowance £500; basic-rate dividend tax 8.75%.
Director salary set at £12,570.
Turnover £52,000 stays below the £90,000 VAT threshold.
CONTRACTOR CALCULATION
Company profit before CT ........................ ≈£37,982.
Corporation Tax at 19% .......................... ≈£7,217.
Post-tax profit available as dividends .......... ≈£30,765.
Dividend tax (basic-rate) ....................... ≈£2,648.
Total director take-home ........................ ≈£40,700.
COMPANY EXPENSES
Use of legitimate company expenses. Each £1,000 of legitimate company spend typically feels like £750–£800 net to you after CT relief and avoided dividend tax. This can significantly reduce corporation tax. Especially if you can include rent, often people's largest expense.
PENSION OPTION
A £3,000–£4,000 employer pension contribution usually improves overall wealth by roughly £500–£1,000 versus taking the same amount as dividends, subject to allowances.
CAVEATS
IR35 or Off-Payroll inside status will narrow or remove the advantage.
You forgo employee benefits unless you price them into your fee.
Single-director companies should not rely on Employment Allowance.
Stay under VAT unless there is a clear reason to register.
OTHER
There are ultimately many ways of structuring this arrangement, and each individual's personal circumstances will be different. Importantly, you can manage your affairs in the way that works best for you.
Additional sources: Freestyle Accounting. Government Website.