5 ways to increase your take-home pay 

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One reason why people choose to become contractors is that they can have the ability to earn more than they did as an employee. This is because they can charge higher rates and if they think about how they structure their work (e.g. working through a limited company versus working through an umbrella company) they can limit the amount of tax they have to pay. 

Contract rates vary per sector and region, but our research has shown that those who work in the Finance, IT and Change Management sector are amongst some of the highest earning contractors. If you work in these areas, it’s great news for you!  

While contracting can give you the ability to earn more money, it isn’t for everyone. There may be extended periods when you are not working because of a lack of contract roles. When you are working, you’ll want to make sure you are taking home the maximum amount of money possible, so you have money spare to cover quiet periods. 

To help you do this, here are 5 ways you can legitimately increase your take-home pay:

Charge what you’re worth

Contractor day rates vary depending on the sector, location of the contract and the demand for that particular skillset. If you’re unsure what the average day rate is for your sector, a recruiter should be able to tell you. Or, jobsites like Indeed, CV Library and specialist recruitment sites like ITJobsWatch and EngineeringJobs often have salary checkers. 

IT contractor.

Claim for all the expenses you’re entitled to

Claiming for business expenses can increase your take-home pay as they are offset against your profits which in turn reduces your Corporation Tax bill. However, only legitimate business expenses can be claimed. Our Expenses Guide lists what you can claim for as a business expense. 

Each year millions of business expenses go unclaimed and the reasons for this are because of lost recipients or the hassle that is involved in claiming expenses. However, if you are using a cloud accounting software like Xero or FreeAgent, recording expenses literally takes seconds with their mobile app. 

Pay yourself a lower salary

It comes as a surprise to some contractors when we say that in order to increase your take-home pay you should be yourself a low salary. The reason behind this is that it reduces your tax liability. We recommend taking a salary of around £8,632 which is the National Insurance primary threshold for the 2019/20 tax year.   

Pay the remainder via dividends

Most people would struggle to live off a salary of £8,632. But, don’t panic you don’t have to! The most tax efficient way to withdraw money out of your limited company is via dividends. This is because dividend payments aren’t subject to National Insurance Contributions, unlike a salary which is. 

Calculator with money next to it for calculating expenses.

Most contractor accountants (including us) advise taking a small salary and the remainder via dividends. Our article, What are dividends and when can they be paid explains in detail how this works. 

Review contracts for IR35 

If you suspect your next contract will place you inside IR35, you’ll be taxed at source and could end up paying as much as 30% in tax. Therefore, it’s imperative that each contract undertakes an IR35 review.  This involves looking at your contract terms and working practices to determine if they are IR 35 compliant. 


Click here to find which of our all-inclusive monthly accounting packages include unlimited IR35 reviews. 

Speak to one of our Directors on 01962 867550 or send us a message via our website to find out if you’re able to legitimately reduce your tax liabilities.

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