PAYE vs Self-Employed Calculator

This PAYE vs self employed calculator shows, side by side, how much money you would actually keep from the same gross income whether you are taxed through an employer's payroll or as a sole trader. Comparing employed vs self employed tax is one of the most common questions people ask before going freelance, taking on a contract, or weighing up a permanent job offer, and the answer almost always comes down to one thing: National Insurance. Income tax is worked out identically for both routes in 2026/27, so the tool isolates the part that genuinely changes your self employed take home pay and puts a clear pound figure on the gap.

What this calculator does

Deciding whether you are better off as PAYE or self employed is hard to judge in your head because the two systems share most of their machinery and differ only in the details. This calculator runs both sets of maths on the income you enter and then lines up the results so you can see the difference at a glance. For a single salary or profit figure it works out:

• Your income tax bill (the same under both routes for a given taxable income).
• Your National Insurance: Class 1 if you are an employee, or Class 4 plus the flat-rate Class 2 if you are self-employed.
• Your estimated annual take-home pay each way, and the cash difference between them.

It is built for the 2026/27 tax year and uses the current thresholds, so the output reflects today's rates rather than a rule of thumb you half-remember from a few years ago. Because Scotland sets its own income tax bands, the calculator lets you choose your region so the figures stay accurate north of the border as well as in England, Wales and Northern Ireland.

The aim is not to tell you which option is "best" - that depends on your circumstances - but to give you a reliable, up-to-date starting figure so the rest of your decision is grounded in real numbers. Most people are surprised by how small the pure tax difference is, and how much the non-tax factors end up mattering. By separating the maths from the judgement, the calculator lets you treat each part on its own merits.

How to use it, step by step

1. Enter your gross income. For the employed comparison this is your salary before any deductions; for the self-employed comparison it is your profit after allowable business expenses. To compare like with like, use a similar figure for both.
2. Choose your region. Pick Scotland if you live there, as the income tax bands differ; choose England, Wales and Northern Ireland otherwise.
3. Read the side-by-side results. The calculator displays income tax, National Insurance and take-home pay for each route, plus the difference in take-home.
4. Adjust and re-run. Try the contract day rate or freelance income you are actually being offered, not just your current salary. A higher self-employed figure may be needed to match a salary once you account for the benefits you give up.

The number you should focus on is the take-home difference. A small gap may be easily wiped out by the extra costs and lost benefits of self-employment, which the next sections explain.

How take-home is worked out each way

Both routes start from the same place: your Personal Allowance of £12,570, below which you pay no income tax, and the same income tax rates on the income above it. Where they part company is National Insurance.

Employee (PAYE) take-home

An employee pays Class 1 National Insurance through payroll, deducted automatically alongside income tax. In 2026/27 that is 8% on earnings between £12,570 and £50,270, then 2% on anything above the upper earnings limit. Take-home is simply gross pay minus income tax minus Class 1 NI.

Self-employed take-home

A sole trader pays Class 4 National Insurance on profits - 6% between £12,570 and £50,270, then 2% above that - plus a flat Class 2 contribution of £3.65 a week once profits pass the small profits threshold of £7,105. Self-employed take-home is profit minus the same income tax minus Class 4 minus Class 2. Because the main self-employed NI rate (6%) is lower than the employee rate (8%), a self-employed person typically keeps slightly more of the same income.

A worked example on £50,000

Take someone earning £50,000 in England, Wales or Northern Ireland. The income tax is identical either way: £12,570 is tax-free, leaving £37,430 taxed at the 20% basic rate, which is £7,486.

• As an employee: Class 1 NI is 8% of £37,430 = £2,994.40. Take-home is £50,000 − £7,486 − £2,994.40 = £39,519.60.
• As a sole trader: Class 4 NI is 6% of £37,430 = £2,245.80, plus Class 2 of £3.65 × 52 = £189.80, giving £2,435.60. Take-home is £50,000 − £7,486 − £2,435.60 = £40,078.40.

The self-employed route leaves about £558.80 more in this example - entirely the National Insurance saving. That is real money, but as you will see below, it is rarely the whole story.

Notice that the income tax line is exactly the same in both columns. This is the single most useful thing the calculator demonstrates: when you read headlines about freelancers or contractors paying "less tax", what is almost always meant is less National Insurance, not less income tax. The gap also narrows in percentage terms as income rises, because both the employee main rate and the self-employed main rate drop to 2% above the upper earnings limit, so very high earners see a similar saving in cash but a smaller one relative to their total income.

PAYE vs self-employed at a glance (£50,000, 2026/27)

Your own figures will vary with income and region, which is exactly why the calculator above lets you plug in your numbers rather than relying on this single example.

What take-home pay does not capture

A pure take-home comparison flatters self-employment because it only counts tax and National Insurance. In practice, becoming self-employed means giving up a long list of things an employer pays for or provides. Before you act on the calculator's verdict, weigh up these:

• Paid holiday. Employees are entitled to paid annual leave; a self-employed person earns nothing on days they do not work, so part of any apparent gain simply funds your own time off.
• Sick pay. No work, no income. There is no Statutory Sick Pay safety net when you are your own boss.
• Maternity, paternity and parental pay. Employees can qualify for statutory family pay; the self-employed have far more limited support (Maternity Allowance rather than Statutory Maternity Pay).
• Employer pension contributions. Auto-enrolment means an employer typically pays into your pension on top of your salary. A self-employed person funds their pension entirely themselves, which can be worth thousands a year.
• Income stability and benefits. A salary arrives every month; self-employed income can be lumpy, and you carry the cost of unpaid invoices, quiet periods and your own equipment, insurance and accountancy.

A useful rule of thumb is that a self-employed income usually needs to be meaningfully higher than a salary to leave you in the same overall position once these are accounted for. The calculator tells you the tax-and-NI gap; only you can value the benefits you would be trading away.

A note for contractors: IR35

If you are weighing up contractor vs permanent work, the comparison gets more involved. Many contractors operate through their own limited company rather than as sole traders, and the off-payroll working rules - known as IR35 - determine whether HMRC treats a given contract as genuine self-employment or as "disguised employment". Inside IR35, the income is taxed broadly like employment, which can erase much of the take-home advantage this calculator shows for sole traders. Outside IR35, a limited-company structure can be more tax-efficient again, but it brings extra admin, corporation tax and dividend considerations that a simple sole-trader comparison does not cover. Treat the self-employed column here as a starting point, and take advice on your specific contract status before committing.

Frequently asked questions

Is self-employment always better for take-home pay?

On tax and National Insurance alone, the self-employed route usually keeps a little more because Class 4 NI is charged at a lower rate than Class 1. But once you factor in lost holiday, sick and pension benefits, the picture often evens out or tips the other way. Use the calculator for the tax gap, then judge the benefits separately.

Why is the income tax the same under both options?

HMRC applies the same Personal Allowance and the same income tax rates to employment income and to self-employment profits. Only National Insurance is structured differently, which is why the calculator highlights the NI difference as the main driver of any change in take-home.

Does this work for Scotland?

Yes. Scotland sets its own income tax bands, so choose Scotland in the calculator and the income tax figures will reflect the Scottish rates while National Insurance, which is UK-wide, stays the same.

Keep exploring

Once you have run the comparison, dig into either route in more detail with our Self-Employed Tax Calculator for a full breakdown of a sole trader's bill, or the Take-Home Pay Calculator to see exactly what lands in an employee's bank account. For the complete walkthrough of the decision - including limited company options, benefits and real-world trade-offs - read our full guide on PAYE vs self-employed.

This tool is general information, not personal financial advice.