What really matters is your take home pay after tax
Let’s be honest, aside from the legal structures, the tax compliance, the PL and EL insurances, what really matters is how much you will take home each month.
Those who suggest innovative tax scheme solutions which promise a take home pay of ‘90% of your income’ amongst other unrealistic outcomes are not to be trusted. Tax has to be paid or HMRC fines and penalties will be incurred, which is why we have created our contractor tax calculator in order to assist you with finding how much tax you will pay and how much your monthly take home pay is.
If you contract through a limited company, you can increase your take home pay by taking advantage of increased tax efficiencies compared to personal ownership. At Gorilla Accounting, we are experts in structuring remuneration through a combination of salary and dividends which can significantly increase your take home pay every month.
A dividend is simply a proportion of company profit paid to its shareholders after corporation tax has been deducted. Calculating tax on dividends works more or less in the same way as the tax on any other income. The essential distinction is the dividend tax rates which are lower than income tax rates. For the 2022/23 financial year (6th April 2022 – 5th April 2023), income from dividends is taxed as follows:
- £0 – £12,570 | 0.00% (Personal Allowance)
-  £12,571 – £50,270 | 8.75% (Basic Rate)
-  £50,271 – £150,000 | 33.75% (Higher Rate)
- Over £150,000 | 39.35% (Additional Rate)
If, for example, your salary is between £12,571 and £50,270 it will be taxed at 20% and a 12% national insurance contribution is levied against it. That’s 32% tax against salaried earnings; a significantly higher tax rate than the 8.75% tax you’d pay against dividends in the equivalent basic rate band.
In addition to the £12,570 tax-free personal allowance, you don’t pay any tax on the first £2,000 you receive in dividends, no matter how much other income you receive. This means you can receive £14,750 dividend income tax-free this financial year if you have no other taxable income.
If you currently operate as a sole trader but plan to incorporate and contract through a limited company in the future, you can use our contractor’s calculator to see how you can increase your take home pay by splitting your remuneration between dividends and salary.Â
Let’s be honest, aside from the legal structures, the tax compliance, the PL and EL insurances, what really matters is how much you will take home each month.
Those who suggest innovative tax scheme solutions which promise a take home pay of ‘90% of your income’ amongst other unrealistic outcomes are not to be trusted. Tax has to be paid or HMRC fines and penalties will be incurred, which is why we have created our contractor tax calculator in order to assist you with finding how much tax you will pay and how much your monthly take home pay is.
If you contract through a limited company, you can increase your take home pay by taking advantage of increased tax efficiencies compared to personal ownership. At Gorilla Accounting, we are experts in structuring remuneration through a combination of salary and dividends which can significantly increase your take home pay every month.
A dividend is simply a proportion of company profit paid to its shareholders after corporation tax has been deducted. Calculating tax on dividends works more or less in the same way as the tax on any other income. The essential distinction is the dividend tax rates which are lower than income tax rates. For the 2022/23 financial year (6th April 2022 – 5th April 2023), income from dividends is taxed as follows:
- £0 – £12,570 | 0.00% (Personal Allowance)
-  £12,571 – £50,270 | 8.75% (Basic Rate)
-  £50,271 – £150,000 | 33.75% (Higher Rate)
- Over £150,000 | 39.35% (Additional Rate)
If, for example, your salary is between £12,571 and £50,270 it will be taxed at 20% and a 12% national insurance contribution is levied against it. That’s 32% tax against salaried earnings; a significantly higher tax rate than the 8.75% tax you’d pay against dividends in the equivalent basic rate band.
In addition to the £12,570 tax-free personal allowance, you don’t pay any tax on the first £2,000 you receive in dividends, no matter how much other income you receive. This means you can receive £14,750 dividend income tax-free this financial year if you have no other taxable income.
If you currently operate as a sole trader but plan to incorporate and contract through a limited company in the future, you can use our contractor’s calculator to see how you can increase your take home pay by splitting your remuneration between dividends and salary.Â
Another key advantage of operating through a limited company is being able to pay a range of expenses through the company. Such expenses include pension contributions, business insurance, business travel and mobile phone costs. The more allowable expenses that go through your company, the less your corporation tax liability will be.
If you decide to incorporate, Gorilla Accounting are company formation experts. We’ve incorporated 1,000’s of our clients and can have your limited company set up the very same day.
When you work as a contractor or freelancer, it’s important to keep on top of your finances. Our online contractor calculator gives you an estimate of your monthly take home pay to help you plan ahead and avoid any financial difficulties down the line.
Every contractor’s circumstances are different and there are lots of factors to take into account. The best way to find out your take home pay after tax would be to give us a call on 0330 107 9672 or request a call back and have a quick chat with one of our expert contractor accountants.
*The information presented by the contractor tax calculator is for illustrative purposes only and merely produces a generic guide to your expected take home pay based on the information provided. Gorilla Accounting will accept no liability for any loss suffered for any reliance placed on the above.
