The headline comparison
Same notional £75,000 of gross billable income:
| Item | Employee | Sole Trader | Ltd Company (outside IR35) |
|---|---|---|---|
| Gross income | £75,000 | £75,000 profit | £75,000 invoiced |
| Income Tax + NI | £20,943 | £21,500 (IT + Class 4 NI) | (Corp Tax + dividend tax structure) |
| Net take-home | £54,057 | ~£53,500 | ~£60,000-62,000 |
| Pension contribution | 5% (£3,750) employer-matched typically | Self-funded | Up to £60k/yr via company |
| Holiday pay | 28 days inc. bank holidays | Self-funded | Self-funded |
| Sick pay | SSP minimum + often more | None | None |
| Redundancy | Statutory + often enhanced | None | None |
| Employment rights | Full | None | None |
Net comparison once benefits are valued
Putting £ values on lost benefits at £75k employee:
| Benefit | Annual value |
|---|---|
| Employer pension match (typically 3-5%) | £2,250-£3,750 |
| Paid holiday (28 days = ~£8,000 of equivalent earnings) | £8,000 |
| Sick pay (full pay 1-6 months typical) | £4,000-£10,000 amortised |
| Private healthcare (if provided) | £600-£1,200 |
| Share scheme participation | Variable, £0-£10,000+ |
| Other benefits (life insurance, season ticket loan, etc.) | £200-£1,000 |
Total: £15,000-£35,000 of benefit value depending on employer.
Once netted, the self-employed advantage at £75k often narrows to £0-£5,000/year of pure cash difference.
When self-employed wins financially
- High earner (£80k+) on a limited-company outside-IR35 contract
- Specialist work commanding strong rates (£500+/day)
- Multiple clients (no single point of dependency)
- Lower risk tolerance for sick days / unemployment gaps (built into rate)
- Strong pension utilisation (up to £60k/yr via Ltd)
When employed wins financially
- Mid-earner (£40-65k) with strong employer benefits
- Equity / share scheme participation
- High pension match (some employers offer 8-12%)
- Job security in a chosen sector
- Mortgage / financial product accessibility
- Family / health reasons valuing predictable income
Non-financial trade-offs
Self-employed advantages: - Flexibility on working hours + location - Multiple clients reduces single-employer dependency - Tax-deductible expenses (some) - Higher financial ceiling (no employer cap) - Control over career direction
Employee advantages: - Predictable income - Workplace community + mentorship - Career structure + promotion paths - Less admin - Easier mortgage / financial products - Statutory employment rights (unfair dismissal, parental leave, etc.)
The IR35 wrinkle
If contracting via limited company, IR35 status is decisive:
Outside IR35 - full self-employed benefits apply - Salary + dividends extraction - Tax-efficient pension via Ltd - 15-25% more net than equivalent employee gross
Inside IR35 - taxed largely as employee - Salary equivalent on engagement income - No dividend extraction benefit - Limited company structure provides little tax advantage - Often umbrella PAYE is simpler with same net result
Since April 2021, medium/large clients determine IR35 status, not you.
Decision framework
Ask: 1. Is my expected annual income < £40,000? - Stay employed unless other factors (flexibility, location) 2. £40-60,000 and stable employer with good benefits? - Employed usually wins 3. £60,000+ and contracting opportunities outside IR35? - Limited company likely wins 4. Risk tolerance low + family considerations? - Employed 5. High specialism + multi-client option + comfortable with self-management? - Self-employed
In short
UK 2026: same gross income produces 15-25% higher net take-home for outside-IR35 limited-company self-employed at £50k+. Once benefits value (pension match, paid holiday, sick pay) is netted, gap narrows to £0-£5,000/year for many. Self-employed wins clearly at £80k+; employed often wins below £60k.