Quick answer
Company revenue pays business expenses, salary, employer pension contributions and corporation tax before post-tax profit can be paid as dividends or retained.
Personal take-home depends on what is actually paid to the director or shareholder, not just how much profit the company makes.
Worked example: £115,000 company revenue
A contractor billing £500 per day for 5 days per week across 46 weeks has company revenue of £115,000 before expenses and tax.
If the company has £2,000 expenses and pays a £12,570 director salary, remaining profit is then considered for corporation tax before dividends are available.
If all available post-tax profit is paid as dividends, personal dividend tax is then estimated on top of salary and other income. If some profit is retained, personal take-home is lower for that year but money remains in the company.
Practical explanation
Salary and employer pension contributions can reduce company profit before corporation tax. Dividends are paid from post-tax profit and do not reduce corporation tax.
Company cash flow matters. A company can be profitable on paper but still need cash for VAT, tax bills, accountancy fees, software, insurance or quiet periods.
Retained profit is not personal take-home. It belongs to the company until paid out through a valid route.
Common mistakes
Treating company bank balance as personal spending money.
Ignoring corporation tax when comparing limited company income with salary.
Forgetting VAT, accountancy fees, insurance, software, equipment and pension contributions.
Try the calculator
Use the related calculator to test the numbers against your own assumptions.
UK Contractor Day Rate CalculatorDisclaimer
This guide is a simplified explanation for planning. It is not accountancy, tax, legal or financial advice and does not replace company-specific bookkeeping.