How do I pay myself as a freelancer?

If you're a sole trader

Say you're a freelance illustrator. A client pays £2,000, you move £1,500 into your personal account and leave the rest. None of that move is taxed. What matters is your profit at the end of the tax year: everything you earned, minus your allowable costs.

That makes setting money aside the main job. Our guide How much should I put aside for tax? shows how much to move into a tax pot each time you're paid.

Your pension is the one place where you can cut your tax bill directly. Pay £80 into a personal pension and the government adds £20, so £100 goes in. If you pay higher rate tax, you claim more back on your tax return. You can get relief on contributions up to the amount you earn in the year, within the £60,000 annual allowance.

If you work through a limited company

Lots of camera operators, editors and IT contractors work through their own company. Here the company earns the money and you take it out in set ways, each taxed differently.

Salary

A salary goes through payroll and counts as a business cost, so it lowers the company's Corporation Tax. Three numbers decide the level for 2026/27:

Most contractors settle on £12,570 a year, which is £1,047.50 a month. You pay no Income Tax or employee NI and the year counts towards your State Pension. Your company pays £1,135.50 in employer NI, but the salary and that NI both come off its profit for Corporation Tax.

A company whose only employee is its director can't claim the Employment Allowance, which takes up to £10,500 a year off the employer NI bill. Take on an employee who isn't a director and you usually can.

Keep your salary at £6,708 or more. Below that, the year doesn't count towards your State Pension, and you need 35 qualifying years for the full amount.

Dividends

Dividends are paid from the company's profit after Corporation Tax. They carry no National Insurance and have their own tax rates:

The basic and higher rates went up by 2% in April 2026, and the Budget on 28 October 2026 kept them the same for 2027/28. The rates are the same across the UK, Scotland included.

Before you pay one, check the company has enough profit after tax to cover it, including profit kept from earlier years. Paying out more is an unlawful dividend and usually ends up treated as a loan. Record every dividend with board minutes and a dividend voucher, or HMRC can argue it was salary. Every shareholder with the same class of share gets the same amount per share.

A contractor's year in numbers

Priya is a freelance editor working through her own company. She's the only shareholder and only employee, with no other income. In 2026/27 the company makes £60,000 before paying her, and she takes out everything.

Figures rounded. Based on England, Wales and Northern Ireland rates. Your figures will be different.

For comparison, a sole trader with the same £60,000 profit keeps about £46,111 after Income Tax and National Insurance. At this level the tax ends up much the same, and a company brings extra costs such as payroll and annual accounts. If you're thinking of going limited for tax alone, talk to us first.

Pension payments from your company

Your company can pay straight into your pension. There's no Income Tax or National Insurance on it for you or the company, and the company gets Corporation Tax relief as long as the amount is reasonable for your work. It isn't capped by your salary the way personal contributions are.

If Priya's company paid £10,000 into her pension, her take-home pay would fall by only about £7,230, because that money skips both Corporation Tax and dividend tax. For a higher rate taxpayer the saving is bigger.

The £60,000 annual allowance covers all contributions, and you can usually carry forward unused allowance from the previous three tax years. The company gets relief in the year it actually pays, not when it agrees to. The money is locked away until 55, rising to 57 from 6 April 2028.

Inside IR35?

If a contract is inside IR35, the client or agency treats your fees much like employment income and takes tax and NI before paying your company. The salary and dividends approach above mostly applies to work outside IR35. Check each contract's status before you plan your pay around it.

When the numbers change

• Income near £100,000: above it you lose £1 of Personal Allowance for every £2 you earn, an effective rate of around 60% up to £125,140. Pension payments can bring you back under.
• Child Benefit in your household: the High Income Child Benefit Charge starts at £60,000 of income and claws it all back by £80,000. Dividends count.
• A PAYE job alongside your freelance work: it uses up your Personal Allowance and basic rate band first.
• Scottish taxpayers: salary and sole trader profit are taxed at Scottish rates. Dividends aren't.
• A student loan: repayments are worked out on your total income, dividends included.

Habits that keep more in your pocket

1. Plan across tax years. Your basic rate band resets every 6 April, so a limited company director can spread dividends over two years to keep more of them at 10.75%.
2. Report on time. Dividends over £500 need reporting to HMRC, and over £10,000 you'll need a Self Assessment return.
3. Keep business and personal money apart. In a company, money you take that isn't salary, dividends or a genuine expense goes on your director's loan account. If it's still owed nine months after the year end, the company pays a temporary 35.75% charge on it.
4. Know your profit as you go. Up-to-date books tell you what you can safely take.

This guide gives general information based on the rules for the 2026/27 tax year as at November 2026, including Budget 2026 announcements. It isn't personal advice, so speak to us before acting on it.