Is PAYE or self-employed better at £25,000?

At £25,000, PAYE leaves you with approximately £21,520 net, while self-employed leaves you with around £21,768. Self-employment usually wins on take-home alone but loses on employee benefits like sick pay, holiday and pension contributions.

Why does self-employed take more home than PAYE at the same gross?

Self-employed workers pay Class 4 NI at 6% rather than employee Class 1 NI at 8%, and there is no Employer NI. They can also deduct legitimate business expenses before tax.

£25,000: PAYE vs Self-Employed

Same headline number, two very different take-home figures. Here is what £25,000 a year looks like in both setups for the 2026/27 tax year.

PAYE Employee

£21,520

Net per year

Self-Employed

£21,768

Net per year (before expenses)

Where the difference comes from

Both roles pay the same Income Tax bands on the same Personal Allowance. The take-home gap comes from National Insurance:

PAYE employees pay Class 1 NI at 8% on earnings between £12,570 and £50,270, then 2% above. Employer NI sits on top.
Self-employed sole traders pay Class 4 NI at 6% on profits between £12,570 and £50,270, and 2% above. Class 2 has been effectively abolished from 2024. No employer NI exists.

Self-employed workers can also deduct legitimate business expenses (home office, mileage, equipment, software) before tax — which the figure above does not account for. In practice, real-world self-employed take-home is often higher than shown.

But the headline number is not the whole picture

Take-home maths favours self-employment. Lifestyle maths often does not. Things PAYE employees get for free:

Holiday pay (typically 28 days including bank holidays)
Statutory Sick Pay (currently £116.75/week)
Auto-enrolment workplace pension with employer contributions (usually 3–6%)
Parental leave and pay
Redundancy protection
No Self Assessment filing requirement

Combined, those benefits are typically worth 15–25% of gross salary. The take-home gap may not be enough to offset losing them.

The third option: limited company

For incomes above roughly £40,000, neither pure PAYE nor sole-trader self-employment is usually the most tax-efficient route. A limited company structure — small director salary plus dividends — typically beats both, particularly at £75k–£150k. The catch is admin: Corporation Tax, dividend vouchers, Companies House filings, and an accountant on retainer (£100–£200/month is typical).

IR35 — the key caveat

If you plan to be self-employed but work mainly for one client in employment-like conditions (fixed hours, client's equipment, supervised work), HMRC may rule the engagement "inside IR35" and tax you as an employee anyway. Medium and large businesses are responsible for that determination under the 2021 off-payroll rules. Check IR35 status before committing to any single-client arrangement.

Run the calculator on a different number ›

Other comparison amounts

£25k £30k £40k £50k £75k £100k

Comparison is illustrative. Real-world self-employed take-home is generally higher once legitimate expenses are deducted. Please consult a qualified accountant for any decision affecting employment structure.