IT contractor salary


What level of contractor salary should you take, when you are running your own company? Most importantly, when you are in business for yourself, you can decide on your own level of director salary. This is not the case when you work through an umbrella company, or when you are employed full time.

When deciding on your level of pay, a contractor tax efficient salary is something to consider. As a result, this will help you maximise your take home pay.

Therefore, many limited company contractors and independent consultants who work in the IT field (and other industries), will need to decide on the level of IT contractor salary that their company pays them. Furthermore, the salary of a contractor can also depend on other various factors.

The salary subject is one of the most common things that a contractor needs to consider, when they run their own company. Notably, you could take a low salary, a middle-level salary, or even a high-level salary and the choice is yours. Therefore, you can consider what is best for you and ask your accountant to process this for you going forward.

Other initial considerations

If you are married or have a partner, you might also consider paying your spouse a salary. You can do this if they do some work for your company. As a result, this will help save company tax and it will give your spouse a wage.

Furthermore, depending on what your spouse earns, it may also be an idea to consider making use of the transfer of the Marriage Allowance.

Contractor salary -what to consider   

Things to think about when you decide on your director salary

There is no minimum wage requirement when you are a director of a company. That is unless you have a contract of employment with your company.

When you consider what level of salary to take, you will need to look at various factors. Most importantly, these will include both being tax efficient and paying enough to justify any pension contributions. This may even include paying a higher level of salary, should you have your reasons for doing so.

Each contractor and independent consultant will have their personal preference, when it comes to what they decide on as their level of contractor salary.

If you do not have any reasons for taking a higher salary for pension or other reasons, then you might aim for a tax-efficient mix of salary and dividends. Notably, these are part of our handy guide that covers tax tips for contractors and small business owners.

Salary for a contractor -the options available  

You could take a director salary above the NI threshold (£823 per month) and take the rest of your earnings as dividends. As a result, this is tax-efficient for you.

If you take a director salary above the NI threshold (£823 per month), and take the rest of your earnings as dividends, this is tax-efficient for you.

In the tax year 2022/23, the tax-free personal allowance is £12,570.

You could take a higher level of salary than £823 if you so wish.

NI thresholds

The National Insurance thresholds are as follows:

  • Employers are required to start deducting NICs on earnings above the lower earnings limit (LEL). In 2022/23, this is set at £533 per month or £6,396 per annum. At this level, benefits will accrue for the employee’s state pension.
  • The primary threshold (PT) for employee contributions is set at £823 per month or £9,880 per annum for 2022/23.
  • The upper earnings limit is set at £4,189 per month or £50,270 per year for 2022/23.
  • The secondary threshold (applicable to employers) is set at £758 per month or £9,100 per year and there is no upper earnings limit for employer NIC liabilities.

NI rates

The rates for National Insurance are:

  • 13.25% employee NI for income between the primary threshold and the upper earnings limit
  • 3.25% employees NI for income over the upper earnings limit
  • 15.05% employers NI above the lower earnings limit for NIC Classes 1, 1A, and 1B.

Income tax rates

A salary above the current personal allowance of £12,570, will also incur income tax at 20%.

The current income tax rates are:

Personal allowance Basic rate tax Higher rate tax Additional rate tax
20% 40% 45%
2022/23 £12,570 £0-£37,700 £37,701-£150,000 £150,001


Due to the increase in National Insurance rates and indeed the National Insurance bands in tax year 2022/23, an optimum salary is now £992.33. This is because your company will make more Corporation Tax savings even through there is employer’s NI payable above £533 per month. This level of salary is optimal if you have no other sources of income such as rental profits, self-employment profits, pension income etc that will use up your personal allowance. If you do have other income, £823 will be the optimal salary.

Indeed, the above does assume, of course, that you will fall outside of the IR35 rules. The rules came into force in the public sector on 6 April 2017 and private sector on 6 April 2021. The IR35 reform effectively means the duty of determining the IR35 status of a contractor’s work falls on the service provider, rather than the contractor. At the moment, this only applies to large and medium companies.

There are tax calculators online which can help you work out any tax and NI on your chosen salary. This website aims to bring you a calculator in the future.

An example of being tax efficient

Many IT professionals or indeed other independent consultants, may choose to take a salary of £992.33. In addition, if they are earning enough through their company, they could choose to take the following as annual earnings from their company:

IT contractor salary 12 x £992.33    11,908.00
Dividend 12 x £3,390   38,280.00

An income of £50,188 (assuming that the contractor has no other substantial income from any other sources) would leave the individual just under the higher rates tax level (£50,270) in 2022/23. This level and mix of income is tax efficient as you would be both maximising your basic rate tax band, and not be incurring any personal higher rates tax.

Pension considerations     

When you make pension payments, the general advice is your salary should be at least as much as your pension payments. Your pension adviser can let you know here. Notably, they can advise with regards to what salary level you need to be able to make your pension payments.

However, if your company makes `employer pension contributions’, there is no requirement for your salary to be as much as these, unlike when you make such contributions yourself.

You have worked at several different employers in the past and have various pension schemes, As a result of this, something that you may be interested in is pension consolidation.

Final thoughts

Many contractors choose the most tax efficient option by taking a director salary, just above the NI threshold. As a result, they can then choose to take the rest of their earnings as dividends from their company.

Another useful guide on taking income from your company is the most tax efficient way to pay yourself.

Link to Contractor Advice UK group on


Published On: March 3rd, 2021 / Categories: Contractor Tips, Payroll /

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One Comment

  1. scott291074 April 19, 2020 at 11:34 am - Reply

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