Compare your take-home pay inside and outside IR35 to understand the tax impact of your employment status.
This calculator provides simplified estimates for guidance only. IR35 status determination is complex and depends on many factors. Always consult a qualified accountant or use HMRC's CEST tool for IR35 status determination.
IR35 is UK tax legislation that affects how contractors and freelancers are taxed. Officially known as the Intermediaries Legislation, it was introduced in 2000 to prevent "disguised employment" -- situations where individuals work like employees but operate through an intermediary (usually their own limited company) to pay less tax. If HMRC determines that a contractor would be an employee if they were engaged directly, the contract falls "inside IR35" and the contractor must pay broadly the same tax and National Insurance as an employee. The financial difference between working inside and outside IR35 is significant. Outside IR35, a contractor can pay themselves a small salary (typically at the Personal Allowance level to avoid income tax) and take the remainder of their company profits as dividends, which attract lower tax rates than employment income. Inside IR35, the contractor is treated as a deemed employee, with income tax and National Insurance calculated on a "deemed employment payment" after deducting a flat 5% for expenses. Understanding the tax implications of IR35 is crucial for any contractor operating through a limited company. This calculator compares the take-home pay for both scenarios, allowing you to see exactly how much more you would pay in tax if your contract is deemed to be inside IR35. The results can help inform your decision about which contracts to accept, how to price your services, and whether the limited company structure remains worthwhile.
Follow these steps to compare inside and outside IR35 take-home pay: 1. Enter your daily contract rate. This is the amount you charge your client per day, before any deductions. Typical UK contractor rates range from GBP 200 to GBP 1,000+ per day depending on the industry and specialism. 2. Enter the number of working days per year. The default is 220, which assumes roughly 46 working weeks after accounting for holidays, bank holidays, and bench time between contracts. Adjust this based on your actual working pattern. 3. Optionally, expand the advanced options to adjust your annual business expenses. The default is GBP 5,000, covering typical costs such as accountancy fees, professional indemnity insurance, equipment, travel, and training. This amount is deducted from revenue in the outside IR35 calculation. 4. Review the comparison. The calculator shows take-home pay for both outside IR35 (operating through your Ltd company with optimum salary plus dividends) and inside IR35 (deemed employment with 5% expense deduction). The bar chart provides a visual comparison. 5. Examine the breakdown for each scenario. The outside IR35 breakdown shows salary, dividends, corporation tax, dividend tax, and employer NI. The inside IR35 breakdown shows gross pay, income tax, employee NI, and employer NI.
The outside IR35 calculation models the tax-efficient salary-plus-dividends approach commonly used by contractor limited companies. The contractor pays themselves a salary at the Personal Allowance level (GBP 12,570), which incurs no income tax and minimal National Insurance. The company pays corporation tax at 19% on the remaining profits (after salary, employer NI, and business expenses), and the after-tax profit is distributed as dividends. Dividend tax rates for 2026-27 are 8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate, after the first GBP 500 of dividends are tax-free. The contractor's dividend tax is calculated by adding the salary and dividends together to determine which income bands the dividends fall into. The inside IR35 calculation treats the contractor as a deemed employee. First, a 5% flat-rate expense deduction is applied to the gross contract income. The remaining amount (the "deemed employment payment") is then subject to employer NI at 13.8% above the secondary threshold (GBP 9,100). After deducting employer NI, the gross pay is subject to income tax using standard PAYE bands and employee NI at 8% (on earnings between GBP 12,570 and GBP 50,270) and 2% above. The effective tax rate for each scenario is calculated as the total deductions (all taxes and NI) divided by the gross annual contract income, expressed as a percentage. The difference between outside and inside take-home pay shows the financial impact of IR35 status.
IR35 status is not determined by this calculator -- it is based on the nature of the working relationship between the contractor and the end client. The three key tests HMRC considers are: control (does the client control how, when, and where you work?), substitution (can you send a substitute to do the work?), and mutuality of obligation (is the client obliged to offer work, and are you obliged to accept it?). Since April 2021, for medium and large private sector clients and all public sector clients, the end client (not the contractor) is responsible for determining IR35 status. For small private sector clients, the contractor still determines their own status. HMRC provides the CEST (Check Employment Status for Tax) tool at gov.uk to help with status determination, although its accuracy has been debated. The outside IR35 calculation in this tool uses the small profits corporation tax rate of 19%. Companies with profits above GBP 50,000 may pay a higher effective rate due to marginal relief, and those above GBP 250,000 pay the main rate of 25%. The calculation also assumes all post-tax profits are distributed as dividends in the same tax year. If you are inside IR35, you may still benefit from operating through a limited company for other contracts that are outside IR35. Many contractors have a mix of inside and outside contracts, making the overall tax position more complex than either scenario alone. Always consult a specialist contractor accountant for personalised advice.