Self-employed vs employed calculator

How it works

If you’re choosing between a job and working for yourself, or weighing up a contract role, it helps to know how the tax compares on the same amount of money. This calculator puts an employee’s salary and a sole trader’s profit side by side.

Income tax is the same

Employees and sole traders pay income tax at the same rates and get the same Personal Allowance of £12,570. The difference is how it’s collected: employees pay through PAYE each payday, while sole traders pay through Self Assessment, usually in two payments on account plus a balancing payment.

National Insurance is different

• Employees pay Class 1: 8% on earnings between £12,570 and £50,270, then 2%.
• Sole traders pay Class 4: 6% on profits between £12,570 and £50,270, then 2%. Class 2 is no longer compulsory; it’s treated as paid when profits are at least £7,105, and can be paid voluntarily below that.

So on the same figure a sole trader keeps more. But that isn’t the full picture: an employer also pays 15%employer National Insurance, pension contributions, holiday pay and sick pay. A fair comparison of a contract rate should include those.

What “profit” means

For a sole trader, tax is charged on profit: income minus allowable business expenses. Enter profit, not turnover. If you trade through a limited company, use the dividend vs salary calculator instead.

Comparing a contract with a job

If you’re offered a contract at a day rate, multiply it by the days you expect to work in a year, after holidays, bank holidays and gaps between contracts, then take off your business expenses to get a realistic profit figure. Compare that with an employed salary plus the employer pension contribution and the value of paid holiday and sick pay. A day rate that looks much higher than a salary can end up worth about the same once you account for unpaid time off.

You may also need to think about IR35 if you work through your own company for a client, and about registering for VAT if your turnover passes the VAT threshold. Both are outside this calculator, which compares a sole trader with an employee.

Many people are both employed and self-employed. In that case your employment income uses your Personal Allowance and tax bands first, so your profits may be taxed at a higher rate than this side-by-side comparison suggests.

Rates verified against HMRC on 5 October 2026.

Worked example

On £40,000, an employee takes home £32,320 after £5,486.00 income tax and £2,194.40 Class 1 National Insurance. A sole trader with £40,000 profit pays the same income tax and £1,645.80 Class 4, taking home £32,868: £549 more.

At £80,000 the difference is £754.