User Guide

A practical walkthrough of every option in the calculator and the UK tax concept behind it. If something on the form isn't obvious, this is the place to look.

Not an official HMRC service. Calculations follow the HMRC PAYE Tax Table Routines specification v24.0 (Feb 2026), but for binding tax decisions consult a qualified adviser.

Quick start

Land on the calculator with a default empty form. Minimum to get a useful result on the PAYE tab:

1. Pick the Tax Year (e.g. 2025/26).
2. Enter your Income £ (gross annual salary).
3. Leave Income Type = Yearly and Workweek Hours = 40.
4. Press Show.

Everything else is optional and tunes the calculation. The result table appears below the form with the full breakdown — yearly, monthly, weekly, hourly columns.

Tabs at the top

Switching tabs gives you a different form tailored to that situation. Most of the rest of this guide is about the PAYE tab; the Limited Co tab has its own section toward the end.

PAYE form options

Tax Year

Which UK tax year your income falls in. UK tax years run from 6 April to 5 April. "2025/26" means 6 April 2025 – 5 April 2026.

The selector lists every year for which the calculator has been seeded with rates. If a year you want isn't there, the codebase needs a small update — the maintainer adds a row to tax_rate_seed_data.py and the calculator picks it up on the next deploy.

Income £

Your gross salary in pounds — what's on your contract / job offer before anything is taken off. If Income Type is Yearly, this is the annual figure. If Hourly, this is the per-hour rate.

Income Type

• Yearly: enter annual salary. The calculator slices it into monthly / weekly / hourly equivalents in the result.
• Hourly: enter hourly rate. The calculator multiplies by Workweek Hours × 52 to get an annual figure for tax purposes.

Workweek Hours

Used in two places: - If Income Type = Hourly, multiplies your rate to get an annual figure. - Always used to compute the Hourly column in the result breakdown.

It does not affect tax or NI — those are determined by your annual income, not how many hours you work.

Calculation basis

Two views of the same numbers, both HMRC-defined:

• Monthly payslip (HMRC default) — applies the per-period rounding rules from the HMRC PAYE Tax Table Routines spec (§4.4 / §10). This is what an HMRC-compliant payroll system would actually deduct on each monthly payslip. The annual figures shown in the result are the sum of those 12 monthly deductions.
• Weekly payslip — same idea but for weekly pay (× 52).
• Annual (Self Assessment view) — single-period computation; no per-period rounding. Matches the "textbook" annual figure consumer calculators tend to show, and the figure HMRC would reconcile to via P60 / Self Assessment at year-end.

The two can legitimately differ by a few pence — sometimes a few pounds — per year. Both are correct; they answer slightly different questions: - "What gets deducted from each payslip?" → Monthly / Weekly. - "What does HMRC ultimately think I owe for the year?" → Annual.

Tax Code

Your HMRC-issued tax code. Most common: 1257L (full personal allowance, £12,570 untaxed in 2025/26).

The calculator handles a wide range of codes:

Note: S and C prefixes override the Scotland checkbox.

Options checkboxes

• Blind — adds the Blind Person's Allowance to your tax-free amount (£3,130 in 2025/26).
• No NI — switches off National Insurance. Useful for pensioners or anyone above State Pension age.
• MCA — Married Couple's Allowance. Reduces your tax bill by the MCA relief amount (typical for couples where at least one partner was born before 6 April 1935).
• Scotland — uses Scottish income tax bands instead of rUK. Overridden by S / C prefix in the tax code if present.

Pension contributions (optional card)

UK auto-enrolment makes pension mandatory for most workplace employees, so this is relevant for ~80% of PAYE earners. Three HMRC-recognised schemes; pick whichever your provider says yours is.

The % of gross field is your contribution as a percentage of gross salary. The result table will show a Pension Contribution row.

Student loan (collapsed by default)

UK student loans are repaid via PAYE once your income exceeds the plan's annual threshold. You may have one undergraduate plan and optionally also a Postgraduate Loan in parallel.

Postgrad stacks on top of an undergrad plan. For each plan, the deduction is (income above threshold) × rate, rounded down to whole £ per period (HMRC SL3).

Other income (collapsed by default)

Currently a single field: Annual dividends £. This is for dividends from shares / ETFs you hold outside an ISA. (ISA dividends are tax-free and don't go here.)

The first £500/year is covered by the dividend allowance and tax-free. The rest is taxed at 8.75% / 33.75% / 39.35% based on which income tax band the dividend slice falls into above your salary's taxable position.

Note: dividend tax is not devolved — Scottish taxpayers use rUK band positions for the split, even though their salary uses Scottish bands.

Reading the PAYE result table

Yearly / Monthly / Weekly / Hourly columns for each row:

Rows that don't apply to your scenario are hidden — a casual user doesn't see Pension / Student Loan rows when those aren't in play.

Limited Company tab

For directors of small UK Ltd companies who want to model the full money-out flow: company revenue → corp tax → distributable profit → salary + dividends → personal tax → take-home + retained.

Inputs

• Annual revenue £ — gross income the company invoices in the year, before any costs.
• Allowable expenses £ — deductible business expenses (office, software, travel, accounting fees, etc.). The calculator subtracts them from revenue before corp tax.
• Director salary £ — what you pay yourself via PAYE. Defaults to £12,570 (the 2025/26 personal allowance) — a common choice.
• Dividends drawn £ — how much profit you take out as dividends. Capped at distributable profit (the calculator shows a "capped" marker if you ask for more).

What gets computed

Revenue            £100,000.00
−  Expenses              −20,000.00
−  Director salary       −12,570.00
−  Employer NI on salary    −1,135.50   (15% above £5k threshold in 2025/26)
─────────────────────────────────────
=  Pre-tax profit        £66,294.50
−  Corporation tax       −13,818.04   (small rate / main rate / marginal relief)
─────────────────────────────────────
=  Distributable profit  £52,476.46

   Dividends paid        £30,000.00   (limited to distributable)
−  PAYE income tax              £0.00
−  Employee NI on salary        £0.00
−  Dividend tax           −2,581.25
─────────────────────────────────────
=  Director take-home    £39,988.75
   Retained in company   £22,476.46

Optimal split suggestion

Below the result, the calculator searches across plausible salary levels (in £100 steps from £0 to £100k) and finds the salary / dividend split that maximises your take-home for the same total drawing (salary + dividends) you entered. The optimiser is locked to your chosen total: if you wanted to draw £40k, it suggests the most efficient way to draw £40k — it never advises pulling more money out of the company than you asked for.

Two states:

• Optimal badge — your input is the most tax-efficient split for drawing your chosen total (within £1).
• Suggestion badge — a different salary / dividend ratio would give you £X more take-home for the same total drawing; the calculator shows the suggested salary, the matching dividend amount, and the take-home gain. Click Apply optimal split to pre-fill the form with the suggested values.

Common findings in 2025/26: - For modest drawings (e.g. £40k), salary £12,570 (full personal allowance) + the rest as dividends is usually optimal — salary uses the allowance instead of paying corp tax + dividend tax on that slice. - For very high-revenue scenarios where you draw a lot, a salary around £5,000 (just below the employer NI threshold) can edge out £12,570 because the saved employer NI on the slice between £5k and £12,570 outweighs the extra dividend tax.

Why locked to your total drawing? An unconstrained optimiser would always advise draining every penny of distributable profit as dividends — but most directors keep retained earnings inside the company for working capital, future investment, or smoothing across years. The optimiser respects that intent: it only reshapes the split, never the amount.

The optimiser ignores impossible scenarios (where the salary + employer NI would exceed available revenue, or the company couldn't fund the requested dividend at a given salary).

Director's NI

The Limited Co flow uses HMRC's annual cumulative basis for director's NI (NIM12005). In practical terms:

• NI is computed on the full annual salary in one shot, not per pay period.
• One annual threshold (£12,570 in 2025/26), no per-period stepwise rounding (£1 weekly / £4 monthly Table A doesn't apply to directors).
• This matches HMRC's directive that directors must use the annual basis regardless of how their salary is drawn through the year — prevents NI dodging by clustering pay into a single period.

For a director on a steady monthly salary the annual basis result matches the per-period employee calculation to the penny. The difference only appears for uneven payments — but you'll always see the spec-correct figure.

What the Limited Co tab does not model (yet)

• IR35 inside / outside comparison (Phase 4e).
• Inside-IR35 deemed payment.
• Multiple directors / shareholders with different splits.
• Pension contributions on the director side (the Limited Co flow doesn't expose the pension fields yet — for now use the PAYE tab if you also want to model the salary's pension impact).

Umbrella Company tab

For contractors paid via an umbrella company on a day rate. The umbrella is your "employer of record" — it receives the agency payment for your work, deducts its own costs (margin, employer NI, Apprenticeship Levy), and pays you the remainder via PAYE.

Inputs

• Day rate £ — what the agency pays the umbrella per working day.
• Working days / year — typical: 220 (allows for ~5 weeks off / bank holidays). Reduce if you take longer holidays or expect unpaid bench time between contracts.
• Umbrella margin £/week — the umbrella's fee. £15–£30/week is typical (always quoted on a "weekly" basis even if you're paid monthly).
• Tax Code — defaults to 1257L; change if HMRC has issued you a different one.

What gets computed

1. Annual contract value = day rate × working days. This is the gross value of your contract before any umbrella deductions.
2. Umbrella margin (margin × 52) is removed first.
3. Uplifted gross to umbrella is the figure the umbrella "uplifts" before passing it on as your salary. From this it covers: - Employer NI (15% on salary above £5,000 from 2025/26). - Apprenticeship Levy (0.5% on every £ of your salary — legally only employers with >£3M annual pay bill owe AL, but most umbrellas pass it through to all contractors anyway).
4. PAYE-taxable salary is what's left after employer NI and AL are subtracted from the uplifted gross. This is the "salary" number that appears on your payslip.
5. Income tax and employee NI are then computed on the PAYE-taxable salary using the standard HMRC PAYE engine (annual basis, your tax code).
6. Take-home is PAYE-taxable salary minus income tax and employee NI.

Holiday pay

The 12.07% statutory holiday accrual is treated as already included in the PAYE-taxable salary. Most umbrellas do this — the figure on your payslip already factors in the accrual. If your umbrella holds holiday pay back and pays it separately, your weekly take-home will be lower than this calculator shows, but the annual total stays the same.

What the Umbrella tab does not model

• IR35 — assumes the assignment is inside IR35 (which is when most contractors end up on an umbrella in the first place); outside IR35 work is normally done via Limited Co. See the IR35 tab for a side-by-side comparison.
• Pension contributions through the umbrella scheme.
• Different umbrella charging models (some quote a flat monthly fee rather than weekly).

IR35 tab

For contractors comparing the take-home cost of an inside-IR35 status determination against a clean outside-IR35 Limited Co route. Useful when negotiating a rate uplift to compensate for an inside-IR35 placement, or weighing a contract change.

Inputs

• Day rate — what the client / agency pays per working day.
• Working days / year — typical billable days, default 220.
• Agency margin £/week — the agency's cut, leaves the chain before either side. Default 0 if you invoice the client directly.
• Outside business expenses £/year — running costs of your PSC on the outside-IR35 side (accountant fees, software, equipment). Affects the Outside calculation only.
• Outside director salary £/year — salary you'd pay yourself in the outside scenario. Default £12,570 (full personal allowance, no income tax, no employee NI).
• Tax code — applied to both PAYE legs. Default 1257L.
• "Client is a small private-sector company" — toggles the 5% expense allowance for the Inside leg. See note below.

What gets computed

Inside IR35 (deemed PAYE): same algebra as the Umbrella tab. Annual contract minus agency margin (and 5% allowance if small- client), then employer NI (15%) and Apprenticeship Levy (0.5%) are stripped before deriving a PAYE-taxable salary. Standard income tax + employee NI applied.

Outside IR35 (Limited Co): same flow as the Limited Co tab. Revenue (= contract minus agency margin) → expenses → corporation tax on retained profit → distributable as dividends. The Outside side drains all distributable as dividends so the comparison is apples-to-apples — Inside has no Ltd in which to retain profit, so retained profit on the Outside side wouldn't be contractor take-home anyway.

The result is a side-by-side breakdown plus a single delta line ("Outside is £X better" or vice versa).

5% expense allowance — the small-client exemption

Pre-2017 (public sector) / pre-2021 (private sector), every PSC on inside-IR35 work could claim a flat-rate 5% expense allowance. Off-payroll working rules removed it for medium and large clients; it survives only when the end-client is a small private-sector company (the PSC is then responsible for status determination and the original IR35 mechanics still apply).

Toggle the checkbox to apply the 5% allowance. Default is off because most contractors today work through agencies for medium / large clients.

MVP simplification: the 5% amount is treated as "spent on PSC running costs" — it leaves the uplifted gross and never re-appears in take-home. Strictly the 5% remains inside the PSC and could be drained as a dividend after corporation tax, so this slightly understates Inside take-home for small-client scenarios. The direction is conservative (won't overstate inside-IR35 viability); revisit if real users push back.

What the IR35 tab does not model

• Status determination itself — the toggle is "you're inside, what does it cost?", not "are you inside?". Use HMRC's CEST tool or professional advice for the determination.
• Pension contributions on either leg.
• Mixed years (partly inside / partly outside) — assumes one status for the full year.
• Multiple Outside-IR35 contracts in the same Ltd Co (the model treats this as a single revenue stream from one client).

Sole Trader / Self-Employed tab

For people running a self-employed business (sole trader) — fees, freelance, Etsy, tutoring, consulting — paying tax via Self Assessment rather than PAYE. The optional PAYE-income field handles the common UK case of a side-hustler combining freelance with a part-time PAYE job.

Inputs

• Self-employment turnover — gross income from your self-employed business (SA103S box 9 / SA103F box 9).
• Allowable expenses — deductible business expenses (SA103S box 20 / SA103F sum of allowable boxes). The £1,000 Trading Allowance is applied automatically when it gives a smaller taxable profit than your real expenses, so just enter your actual numbers and the calculator picks the better treatment.
• Additional PAYE income (optional) — gross PAYE wages from a separate job. Stacks with self-employment for income tax band placement, NI is computed separately (Class 1 on PAYE, Class 4 on profit).
• Pay Class 2 NI voluntarily — toggle. Class 2 was made voluntary in April 2024 (Spring Budget). Worth opting in if your trading profit is under £6,725 (Small Profits Threshold) and you want a State Pension credit for the year.
• Scottish taxpayer — uses Scottish bands (SRIT) for income tax. NI is non-devolved.
• Tax code — applied to the PAYE side only.

What gets computed

1. Trading profit = max(turnover − expenses, turnover − £1,000 trading allowance, 0). The allowance is mutually exclusive with claiming real expenses; the calculator picks whichever gives the lower taxable profit.
2. Combined income tax: trading_profit + paye_income, less personal allowance (with taper above £100k), through the rUK or Scottish bands. Total tax is then split into "withheld via PAYE" and "SA balance to settle at year-end" so the user sees their actual cash-flow obligation.
3. Class 4 NI: 6% on profit between £12,570 and £50,270, 2% above (post-April 2024). Computed on trading profit alone.
4. Class 2 NI: flat weekly rate × 52 if you opted in. Zero otherwise.
5. PAYE-side Class 1 NI: standard employee NI on the PAYE wage alone, if any.
6. Take-home = (turnover − actual expenses) + paye_income − total_tax. Note: this uses your real expenses, not the trading allowance — the allowance only affects the taxable base, your real bank balance is unchanged by which deduction route you took.

What the Sole Trader tab does not model

• VAT (above £90k turnover, see HMRC guidance).
• Capital allowances on equipment / vehicles. Just include them in your expenses figure if relevant.
• Loss treatment (negative trading profit). MVP clamps profit to zero; HMRC has loss carry-back / sideways relief rules that aren't modelled.
• Annual Maximum NIC reconciliation between Class 1 and Class 4 for high earners with both PAYE and self-employment. Each NI class is computed separately; HMRC reconciles at year-end.
• Pension contributions on either side. Include separately in your tax planning.
• More than one self-employment business in the same year (the calculator treats it as a single business).

Calculation basis vs Limited Co

The Calculation basis toggle (Monthly / Weekly / Annual) only affects the PAYE tab. The Limited Co flow always uses the annual basis internally, because directors typically pay themselves a single annual salary that's reconciled at year-end via Self Assessment, not week by week.

Common scenarios

Plain employee on £45k

PAYE tab. Income £45,000, tax code 1257L, no other options. The default Calculation Basis = Monthly is what your payslip will show.

Higher-rate employee with workplace pension

PAYE tab. Income £80,000, tax code 1257L, Pension scheme = "Net Pay" or "Salary Sacrifice", Pension % = 5 (or whatever your contract says). Salary Sacrifice gives the lowest tax bill (saves both income tax and NI).

Recent graduate with student loan

PAYE tab. Income £35,000, tax code 1257L, Student loan plan = your plan (Plan 2 if you started uni 2012–2023 in England). Result shows a Student Loan row.

Investor with dividends outside ISA

PAYE tab. Income £50,000, tax code 1257L, Other income → Annual dividends £5,000. First £500 tax-free, rest at higher rate (33.75% in 2025/26 for the part falling in the higher band).

Contractor running a Ltd company

Limited Co tab. Annual revenue £100,000, Expenses £5,000 (or whatever your real expenses are), Director salary £12,570 (or use the optimiser's suggestion), Dividends drawn = whatever you intend to pay yourself this year. Look at the Optimal split card to double-check you're not leaving money on the table.

Disclaimers

• Results are estimates based on the HMRC PAYE specification v24.0 for the cases the calculator covers. Edge cases that aren't yet modelled include:
• Director's NI annual cumulative basis (Limited Co tab uses standard per-period NI for now).
• Self-employment / sole trader Class 2 / Class 4 NI.
• Capital gains, rental income, foreign income.
• Higher-rate pension relief on RAS contributions (claim via SA).
• Salary sacrifice impact on statutory pay base (mortgage, SSP).
• Non-standard pay frequencies (fortnightly, 4-weekly).
• Weeks 53 / 54 / 56 in non-standard payroll calendars.
• Tax legislation changes. The numbers reflect rates current at the version pinned in docs/HMRC_PAYE_PIPELINE.md. For binding decisions, always cross-check with a qualified accountant or HMRC's own Income Tax calculator.
• Privacy. The form runs server-side; the only thing logged is anonymous usage analytics (no IP, no income detail beyond the ranges shown in the admin dashboard).