UK IR35 Calculator 2025/26 — Inside vs. Outside Take-Home

If you contract through a limited company, IR35 status is the single biggest variable in your annual take-home pay — often a five-figure difference on the same day rate. This calculator shows you the spread, with the full breakdown for both scenarios.

What is IR35, in 60 seconds

IR35 is HMRC's set of rules for deciding whether a contractor is genuinely running a business or is, in substance, a disguised employee of the client. If your working relationship looks like employment — fixed hours, the client supervising day-to-day, you can't send a substitute, you have no real financial risk — the engagement is inside IR35. If you control the work, can substitute, take on financial risk, and have multiple clients, you're probably outside.

Since the April 2021 off-payroll rules, the IR35 determination for most private-sector engagements is made by the client, not you, via a Status Determination Statement (SDS). Public-sector contracts have been client-determined since 2017. If you disagree, you have 45 days to challenge.

How the two scenarios differ

Outside IR35 — limited company, optimal split

Your company invoices the client, you pay yourself a small "director's salary" pegged to the Personal Allowance (£12,570) so it incurs no income tax, and the remaining profit is paid out as dividends. Corporation Tax of 19–25% (with marginal relief between £50k and £250k profit) is paid by the company first; the dividend allowance shelters the first £500 in your hands, then 8.75% / 33.75% / 39.35% rates apply across the basic, higher, and additional bands.

Inside IR35 — PAYE via umbrella

The full day-rate is treated as employment income. The fee-payer (often an umbrella) deducts employer National Insurance, the apprenticeship levy (0.5%), and their own margin before you see a payslip. The remaining "gross taxable pay" then runs through standard PAYE — income tax 20/40/45 and employee NI 8/2 — leaving you with the kind of take-home a salaried employee earning the same notional figure would get. No dividends, no Corporation Tax sheltering, no business expense claims.

The numbers, at typical day rates

For a £500/day contract worked 220 days, the calculator typically shows roughly:

• Outside IR35: around £84k take-home, with £16k of business expenses sheltering and the bulk of profit drawn as dividends taxed at 8.75 / 33.75%.
• Inside IR35: around £70k take-home, after umbrella margin, employer NI on the assignment rate, and standard PAYE.
• Difference: typically £12–16k a year on a £500/day contract, depending on expense level and umbrella margin. The gap widens at higher day rates because more income tips into the 40% PAYE band when inside, while outside, dividend tax stays at 33.75%.

How to actually be outside IR35

• Right of substitution. Your contract should genuinely let you send a qualified substitute, and the client should accept this in practice — not just on paper.
• Control over how you work. The client tells you the outcome they want; you decide the method, hours, and approach. Lockstep hours and daily direction look like employment.
• Financial risk. You absorb the cost of rework, you have your own equipment, you don't get paid for holidays or sickness. "Day rate plus expenses" with no risk is a flag.
• Multiple clients matter. Genuinely running a business means not being economically dependent on one client. Two or three active engagements helps your status.
• Don't use the office Christmas party. Sounds trivial, but in tribunal cases tiny employment-like benefits (team meetings, ID badges, all-staff communications) tip the balance.
• Use HMRC CEST and get a second opinion. The official CEST tool gives a determination; an independent IR35 review service (QDOS, Markel, Bauer & Cottrell) gives you a defensible second view to challenge an SDS.

Frequently asked questions