What's My Take Home

IR35 Calculator: Inside vs Outside

2026/27

Enter your day rate to see exactly how much you take home working inside IR35 via an umbrella company versus outside IR35 through your own limited company. Includes employer NI, corporation tax, and the optimal salary-dividend split.

What is IR35?

IR35 — formally known as the off-payroll working rules — is UK tax legislation designed to combat disguised employment. It was first introduced in 2000 (as Inland Revenue press release 35, hence the name) and significantly reformed in April 2017 for the public sector and April 2021 for medium and large private sector clients.

IR35 targets contractors who provide services through an intermediary (typically a personal service company, or PSC) but work in a way that is functionally indistinguishable from an employee. If HMRC considers your engagement to fall inside IR35, your income is treated as employment income — subject to PAYE income tax and National Insurance — rather than as company profits that can be extracted as tax-efficient dividends.

The rules hinge on three key tests: substitution (can you send someone else to do the work?), control (does the client control how you work?), and mutuality of obligation (is there an ongoing expectation of work?). A genuine contractor typically passes all three, placing them outside IR35.

Inside IR35 vs Outside IR35

Inside IR35 means HMRC considers your contract to be one of disguised employment. In practice this means:

  • You are typically paid via an umbrella company, which acts as your employer for tax purposes.
  • The umbrella deducts employer NI (15% on earnings above £5,000) from your contract rate before calculating your pay.
  • You pay income tax and employee NI on the remaining amount under PAYE — exactly like a permanent employee.
  • You cannot claim most business expenses, and any umbrella fee is an additional deduction.

Outside IR35 means you are a genuine independent contractor. You:

  • Operate through your own limited company, retaining full control over how you extract income.
  • Can take a small director's salary (typically up to the personal allowance) and pay the remainder as dividends, which are taxed at lower rates.
  • Pay corporation tax on company profits (19% for profits up to £50,000, rising to 25% above £250,000).
  • Can claim legitimate business expenses (accountancy, professional indemnity insurance, equipment, etc.) against your company's profits.

How Inside IR35 Tax Works — Step by Step

  1. Start with your gross contract value — your day rate multiplied by your working days per year.
  2. Deduct umbrella fees — your umbrella company charges a monthly admin fee, typically £100–£200/month, deducted from your contract income.
  3. Deduct employer NI — the umbrella deducts 15% employer NI on earnings above £5,000. This cost, which a normal employer would absorb, is deducted from your contract rate.
  4. Apply PAYE — the remaining amount is your gross salary. Income tax and employee NI are calculated using standard PAYE rules on this figure.
  5. Your take-home is what remains after all deductions — noticeably lower than for a permanent employee at the equivalent salary because you have absorbed the employer NI cost.

How Outside IR35 Tax Works — Step by Step

  1. Company receives revenue — your limited company invoices the client at your day rate.
  2. Deduct business expenses — legitimate expenses (accountancy, insurance, IT equipment, etc.) reduce your company's taxable profit.
  3. Pay a small director's salary — typically £12,570 (the personal allowance). This is a company cost that further reduces profits. Employer NI is payable on the band above £5,000.
  4. Pay corporation tax — the company pays tax on remaining profits at 19–25%.
  5. Extract dividends — after-tax profits are paid out as dividends. You receive a £500 dividend allowance tax-free, then pay dividend tax at 10.75% (basic), 35.75% (higher), or 39.35% (additional rate).
  6. Your take-home is the net salary plus net dividends — typically significantly higher than inside IR35 at the same day rate.

Key Tax Rates for 2026/27

Tax / LevyRateApplies to
Income Tax — Basic20%£12,570 – £50,270
Income Tax — Higher40%£50,270 – £125,140
Income Tax — Additional45%Above £125,140
Employee NI — Main8%£12,570 – £50,270
Employee NI — Upper2%Above £50,270
Employer NI15%On salary above £5,000
Corporation Tax — Small Profits19%Profits up to £50,000
Corporation Tax — Main Rate25%Profits above £250,000
Dividend Tax — Basic Rate10.75%After £500 allowance, within basic rate band
Dividend Tax — Higher Rate35.75%Within higher rate band
Dividend Tax — Additional Rate39.35%Above £125,140

Frequently Asked Questions

What happens to my take-home pay inside IR35?
Inside IR35, your contract income is treated as employment income for tax purposes. The umbrella company (or fee-payer) deducts employer National Insurance — currently 15% on earnings above £5,000 — from your contract rate before passing it to you. You then pay income tax and employee NI on the remaining amount, just like a permanent employee. This means you bear the cost of both employer and employee NI, which significantly reduces your take-home compared to operating outside IR35.
Can I claim expenses inside IR35?
Generally, no. Inside IR35 you cannot claim most business expenses that an outside IR35 contractor could claim through their limited company. HMRC's rules restrict expense claims for deemed employees. You may be able to claim travel to a temporary workplace under certain conditions, but everyday costs like home office, phone, and equipment are typically not deductible. This is one of the key financial disadvantages of inside IR35 working.
What salary should I take from my limited company outside IR35?
Most contractors outside IR35 take a salary equal to the personal allowance (£12,570 for 2026/27) or the employer NI secondary threshold (£5,000). Taking a salary at £12,570 uses your full personal allowance with no income tax due, and employer NI applies on the band between £5,000 and £12,570 at 15%. Above that, a salary would attract both employer NI and employee NI with no additional tax efficiency. The remainder of company profit is then paid as dividends, which are taxed at lower rates than salary.
Does IR35 affect National Insurance contributions?
Yes, significantly. Inside IR35, you effectively pay both the employee's NI (8% on earnings between £12,570 and £50,270, then 2% above) and the employer's NI (15% on earnings above £5,000), since the employer NI is deducted from your contract rate before you receive it. Outside IR35 through a limited company, the employer NI on your director's salary is a company cost but is typically much lower because the salary is kept small. No NI is payable on dividend income.
Who determines my IR35 status?
Since the off-payroll working reforms in April 2021, for medium and large private sector clients (and all public sector clients), the end client is responsible for determining IR35 status using a Status Determination Statement (SDS). For small private sector clients, the contractor's limited company remains responsible for self-assessing their status. HMRC provides the Check Employment Status for Tax (CEST) tool, though it has been criticised for not always giving a clear determination. Getting a specialist IR35 review from a qualified adviser is strongly recommended.
Is it worth contracting inside IR35?
It can be, depending on the day rate and your circumstances. Inside IR35 engagements typically need to pay a higher day rate to compensate for the additional tax burden. Use this calculator to find your break-even rate — the inside IR35 day rate that would give you the same take-home as a given outside IR35 rate. Many contractors find that inside IR35 engagements are still financially worthwhile compared to permanent employment at the same day rate, since contract roles often pay a premium over equivalent salaried positions.