UK IR35 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-home once employment taxes are deducted at source, roughly £20-25k less than an equivalent outside-IR35 contract.

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.

What's the key thing to understand about Inside vs Outside IR35?

IR35 is UK tax legislation designed to ensure that contractors who work in a way functionally similar to an employee — taking instructions, having no real financial risk, being unable to send a substitute to do the work, and being closely integrated into the client's organisation — pay broadly the same income tax and National Insurance as an equivalent employee would, even if they operate through their own limited company. Being 'inside IR35' means the engagement is treated as employment for tax purposes, so tax and NI are deducted at source before payment reaches the contractor's company, substantially reducing take-home pay compared with an 'outside IR35' engagement, where the contractor's limited company can pay itself through a mix of salary and dividends in a more tax-efficient way, similar to a genuine small business. For engagements with medium and large private sector clients, and all public sector clients, the responsibility for determining IR35 status (and the financial risk if it's got wrong) sits with the client or the fee-payer in the supply chain, not the contractor's own company — a significant shift from the earlier rules where contractors assessed their own status. Because status determinations are often disputed and the underlying tests are genuinely nuanced (there's no single factor that decides it), many contractors and clients use HMRC's Check Employment Status for Tax (CEST) tool or seek specialist IR35 advice for contracts of real financial significance.

What should I know about Umbrella Companies and Take-Home Pay Inside IR35?

For contracts deemed inside IR35, many contractors work through an umbrella company rather than their own limited company, since the tax treatment is broadly equivalent and an umbrella simplifies the administration — the umbrella company employs the contractor, invoices the end client or agency for the work done, and pays the contractor a salary through PAYE after deducting income tax, employee National Insurance, and the umbrella's margin (a fee for running the payroll), with the umbrella also separately accounting for employer National Insurance and the Apprenticeship Levy out of the contract rate before it ever reaches the take-home calculation — this is why an inside-IR35 contract rate converts to noticeably less take-home pay than the same headline day rate might suggest to someone used to outside-IR35 or limited company contracting. Holiday pay is also a factor: umbrella employees are legally entitled to statutory holiday pay, which is often rolled up into the rate shown rather than paid separately, so it's worth checking whether a quoted umbrella take-home figure already includes holiday pay or whether it will be paid as a separate, additional amount when holiday is actually taken, since this materially affects month-to-month cash flow even though the annual total is the same either way. Comparing umbrella companies on their margin and transparency, not just the headline take-home figure they advertise, is worth doing since illegitimate 'tax avoidance' umbrella schemes promising unusually high take-home pay inside IR35 carry serious financial and legal risk for the contractor, not just the umbrella operator.

Worked Example: Inside vs Outside IR35 at the Same Day Rate

A contractor is offered £500/day on a contract that's determined to be inside IR35. Working via an umbrella company, the umbrella receives the full contract rate, deducts its margin (commonly a flat fee, perhaps £25-30/day), employer's National Insurance, the apprenticeship levy, and employer pension contributions (unless opted out), before running the remainder through PAYE like a normal employee, including employee NI and income tax. After all these layers, a £500/day inside-IR35 contract might leave a worker with a take-home figure that, per day worked, looks noticeably lower than £500 feels like it should — often cited informally as a meaningful percentage reduction compared to the same gross day rate taken outside IR35 through a personal service company, though the exact gap depends heavily on individual tax circumstances, pension choices, and the umbrella's specific fee structure. The same £500/day assessed as outside IR35, run through the contractor's own limited company, instead pays corporation tax on company profit and lets the contractor decide how much to draw as salary versus dividends, generally producing a higher net take-home for the same gross rate, because employer NI and the umbrella margin aren't deducted in the same way — but it also comes with more admin responsibility and no automatic holiday or sick pay.

Where the Money Goes: Inside vs Outside IR35

These comparisons move with current tax rates, NI thresholds, and umbrella fee structures, all of which have changed more than once in recent years, so always run current numbers for your specific day rate rather than relying on a general percentage gap.