Should you go contracting or stay permanent? Day rates, take-home pay and hidden costs of contracting vs permanent employment compared.
Contracting offers higher gross income than equivalent permanent roles, but contractors pay more in tax and receive no employment benefits. Whether it works out financially depends on your day rate, utilisation, IR35 status and how you value certainty.
| Role | Permanent Salary | Day Rate | Annualised (220 days) |
|---|---|---|---|
| Software Engineer (Senior) | £70,000–£90,000 | £500–£700 | £110,000–£154,000 |
| DevOps Engineer | £65,000–£85,000 | £450–£650 | £99,000–£143,000 |
| Business Analyst | £50,000–£70,000 | £350–£550 | £77,000–£121,000 |
| Cost | Estimate |
|---|---|
| Holiday (28 days equivalent) | ~£7,000–£14,000 per year |
| Accountancy fees | £1,000–£2,500 per year |
| Professional indemnity insurance | £500–£2,000 per year |
| Pension (no employer contribution) | Self-funded |
IR35 determines whether HMRC considers your contract to be disguised employment. Inside IR35 contracts are taxed similarly to permanent employment, eliminating most of the tax advantage. Since 2021, medium and large private sector clients determine IR35 status — making genuine outside-IR35 roles rarer.
Compare your permanent salary vs contractor day rate after tax.
Use the CalculatorGross income is typically 30–50% higher. Once holiday, sick pay, pension, insurance and accountancy costs are factored in, the real premium is often 15–25%.
IR35 legislation determines whether a contractor is genuinely self-employed. Inside IR35 contracts are taxed like employment, significantly reducing take-home pay.