IR35 Calculator (Inside vs Outside)
Compare your UK contractor take-home pay inside vs outside IR35. Uses 2025/26 PAYE bands, NI, dividend tax, and corporation tax to show side-by-side annual difference.
How the IR35 Calculator Works
This IR35 calculator estimates annual take-home pay for a UK contractor under both IR35 scenarios using 2025/26 HMRC thresholds. It takes your contract day rate and working days per year to build an annual gross fee, then runs two parallel calculations. The inside IR35 path treats the full fee as deemed employment income subject to PAYE, employee National Insurance (NI), and an umbrella company's deductions for employer NI plus a weekly fee. The outside IR35 path routes the fee through your own limited company, paying corporation tax at 19% up to £50,000 profit and 25% above, with a tax-efficient mix of director salary and dividends.
The output is a clear side-by-side comparison: PAYE, employee NI, employer NI, and umbrella fees for the inside path; corporation tax, dividend tax at 8.75% / 33.75% / 39.35% bands, and any director salary tax for the outside path. The final line shows the annual take-home difference — typically £8,000 to £15,000 per year in favour of outside IR35 at mid-market day rates. Use this to price a day rate uplift if the client insists on inside determination, or to decide whether the outside structure is worth running your own limited company.
Inside IR35: What Happens to Your Money
When your contract is determined inside IR35, the end client (or agency) deducts income tax and employee NI before paying you. In practice, most contractors go through an umbrella company, which becomes your employer for PAYE purposes. The umbrella also deducts employer NI (15% for 2025/26 from April 2025, up from 13.8%) and the Apprenticeship Levy (0.5%) from your gross rate before calculating your taxable pay. On top, they charge a fee, usually £20 to £30 per week. The result is that a £500/day inside IR35 rate typically nets around £320 to £340/day after everything.
Inside IR35 means no dividend tax efficiency, no expense claims beyond very limited PAYE-claimable amounts, and no control over salary timing. The upside is simplicity: the umbrella handles PAYE and NI, you get weekly or monthly payslips, and you have no corporation-tax responsibility.
Outside IR35: Using Your Own Limited Company
Outside IR35 status means you operate as a genuine business through your own limited company. Your company invoices the client for the full day rate, pays corporation tax on profits (after a small director salary and allowable expenses), and distributes the remaining profit to you as dividends. For 2025/26, the tax-efficient strategy for most one-person companies is: pay yourself £12,570 as a director salary (covered by the personal allowance, so zero income tax), then take dividends up to the £50,270 basic-rate limit taxed at 8.75%. Dividends above that are taxed at 33.75% (higher rate) or 39.35% (additional rate above £125,140).
The corporation tax rate is 19% on the first £50,000 of profit (small profits rate), tapering up to 25% between £50,000 and £250,000, and 25% on profits above £250,000. Allowable business expenses — accountancy fees, software, home-office costs, professional insurance — reduce taxable profit before corporation tax is applied, which is why they are entered separately in this calculator.
Day Rate Uplift for Inside IR35 Contracts
When a contract switches from outside to inside IR35, most contractors negotiate a day rate uplift to offset the take-home hit. The typical ask is 15% to 25%, depending on rate and seasonality. Plug your current outside rate plus a 20% uplift into the inside column of this calculator to see whether the uplift restores your original take-home. For mid-market rates (£400–£600/day), a 20% uplift usually closes most of the gap but not all of it, since employer NI and umbrella fees scale with gross pay.
Disclaimer: Estimate only. This tool is informational and is not tax advice. Figures use 2025/26 HMRC rates and may change. Consult a qualified UK accountant before signing a contract.
Frequently Asked Questions
What does inside IR35 mean for contractors?
Inside IR35 means HMRC (or your end client) has decided your working relationship looks more like employment than a genuine business-to-business contract. When inside IR35, the full contract value is treated as employment income and taxed via PAYE with employee and employer National Insurance deducted before you see any money. Most inside IR35 contractors work through an umbrella company, which adds a weekly fee (typically £20 to £30) and handles PAYE administration. The practical result is roughly 30% to 40% less take-home than the equivalent outside IR35 rate, because you lose the ability to pay yourself in tax-efficient dividends and claim limited company expenses.
How does outside IR35 save money?
Outside IR35 means HMRC accepts you are running a genuine independent business through your own limited company. Your company invoices the client for the full fee, deducts legitimate business expenses, pays corporation tax (19% on the first £50,000 of profit, rising toward 25%), then distributes the remaining profit as dividends. Dividends are taxed at 8.75% in the basic rate band, 33.75% in the higher band, and 39.35% in the additional band — but crucially, no employee or employer National Insurance is payable on dividend income. Combined with a small tax-free director salary, this typically saves £8,000 to £15,000 per year versus an equivalent inside IR35 rate.
What are the 2025/26 UK tax rates used in this calculator?
The calculator uses these 2025/26 HMRC figures: personal allowance £12,570 (tapers above £100,000); basic rate 20% to £50,270; higher rate 40% to £125,140; additional rate 45% above £125,140. Employer NI is 15% above the £5,000 secondary threshold (raised from 13.8% in April 2025). Employee NI is 8% between £12,570 and £50,270, then 2% above. Dividend allowance is £500. Dividend tax is 8.75% / 33.75% / 39.35%. Corporation tax is 19% on profits up to £50,000, tapering via marginal relief to 25% above £250,000. Rates apply to England, Wales, and Northern Ireland — Scottish income tax bands differ.
Should I take a director salary or only dividends?
For most one-person limited companies operating outside IR35, a director salary of £12,570 (the personal allowance) is the most tax-efficient. You pay no income tax on it (it is within the PA), it counts toward your State Pension record, and it reduces company profit pre-corporation-tax by £12,570. The employer NI charge on a £12,570 salary above the £5,000 secondary threshold is £1,135, but the corporation tax saving is £2,388 at 19% — a net gain of £1,253. The calculator defaults to this but lets you choose £9,100 (the secondary NI threshold, avoiding employer NI entirely) or £0 (dividends only, simpler but loses NI credit for State Pension).
What is the umbrella company fee and why does it reduce my take-home?
Umbrella companies are PAYE employment agencies that sit between you and the end client on inside IR35 contracts. They become your legal employer, deduct PAYE income tax and employee National Insurance, and also deduct employer NI (15% from April 2025) plus the Apprenticeship Levy (0.5%) from your gross rate before calculating your taxable pay. On top of these statutory deductions, umbrellas charge an administration fee, typically £20 to £30 per week (£1,040 to £1,560 per year). The fee is usually the smaller deduction — it is the employer NI that takes the biggest bite out of your gross rate.
Can I contract outside IR35 if I only have one client?
Having a single client does not automatically make you inside IR35, but it does weaken your outside IR35 position because it suggests economic dependency on that client. HMRC looks at the full picture using tests around control, substitution, mutuality of obligation, financial risk, equipment, and integration. Genuine outside IR35 contractors typically have a right of substitution in their contract, supply their own equipment, take financial risk (e.g., fixed-price work), correct defects at their own cost, and are not integrated into the client's organisational structure. Use HMRC's CEST tool and consider a professional contract review before accepting any outside IR35 determination.