UK IR35 Contractor Take-Home Calculator (Inside vs Outside)

IR35 Contractor Guide 2026/27

What is IR35?

IR35 (Intermediaries Legislation): HMRC tax rules to identify 'disguised employment'. If your contract working pattern looks like employment despite being via a limited company, you're 'inside IR35' — taxed as an employee. Inside IR35: PAYE income tax + employee NI + employer NI all deducted from your day rate. No salary/dividend optimisation. Use umbrella company or work through client's PAYE. Outside IR35: genuine business-to-business contract. Use your own limited company. Pay corporation tax on profits, then draw a mix of salary and dividends — generally far more tax-efficient than umbrella company PAYE.

What's the key thing to understand about Inside IR35 — The Numbers?

Inside IR35 via umbrella company: client pays day rate × days. Umbrella deducts: employer NI (13.8%), apprenticeship levy (0.5% above £3m payroll). Holiday pay accrual (12.07%) — paid back to you. Umbrella fee (£15-30/week). Then your gross pay calculated. From that: income tax (20-45%) + employee NI (8% on £12,570-£50,270, 2% above). Pension auto-enrolment (3% employer, 5% employee min). Net result: typical contractor at £500/day, 220 days = £110k gross contract value, but only ~£68-72k take-ho

What should I know about Outside IR35 — The Numbers?

Outside IR35 via limited company: company receives invoiced amount + VAT (Flat Rate Scheme often beneficial). Pays: corporation tax 19-25% on profit (rate depends on profit level — 19% under £50k, 25% above £250k, marginal in between). Then extract from company: salary (typically £12,570 — Personal Allowance only, NI-efficient). Dividends — taxed at 10.75% basic / 35.75% higher / 39.35% additional, after £500 dividend allowance. Total tax burden: typically 28-35% all-in. Same £500/day, 220 days, £110,000 gross: outside IR35 typically nets £79,000-82,000 take-home, versus roughly £68,000-70,000 through an umbrella company — a meaningful difference that makes IR35 status worth confirming carefully before taking a contract.

What do I need to know about Decision Factors?

Outside IR35 advantages: 10-20% higher take-home. Pension contributions via company avoid NI. Building cash reserves in company (for sabbaticals, mortgage deposit). Spouse can be employed if genuinely working. Inside IR35 advantages: simpler administration. No accountancy fees. No corporation tax filings. Auto-enrolment pension. Statutory benefits (sick pay, maternity). Equal tax treatment with employees. Decision: if a contract is definitively inside IR35, umbrella is the right choice — running a limited company adds admin overhead (accountancy, filing deadlines, IR35 assessment risk) that isn't worth it purely to chase a marginal tax saving.