IR35 Take-Home Pay Calculator (UK)
IR35 determines how contractors are taxed when working through a limited company. Inside IR35, you're treated as an employee for tax purposes. Outside IR35, you retain tax advantages.
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Many contractors overestimate how big the IR35 gap still is. In 2026/27, employer NI at 15% plus the April 2026 dividend rate rises (10.75% basic, 35.75% higher) have narrowed it sharply: on the same day rate, inside IR35 now typically costs around 1–6% of net take-home rather than the 20–30% seen a few years ago. Some contractors also mistakenly believe they can choose their own status.
Understanding the financial difference helps you negotiate day rates or decide whether a contract is worth taking. Enter your day rate below to compare take-home pay inside versus outside IR35.
Contract Details
2026/27
Typical: 220 days (44 weeks × 5 days)
Inside IR35 (Umbrella/PAYE)
Typical range: £20-£35 per week
Only applies to large employers
Inside IR35 Results
Gross Annual Income
£110,000
Net Take-Home Pay
£65,859
Effective Tax Rate
40.1%
Tax & Deductions Breakdown
Inside vs Outside IR35 Comparison
Inside IR35 (Umbrella)
£65,859
Effective rate: 40.1%
Outside IR35 (Ltd Company)
£67,546
Effective rate: 38.6%
Difference: £1,687 more outside IR35
That's 2.6% more take-home pay annually. IR35 status is determined by HMRC's employment status rules, not contractor preference.
This calculator provides estimates for illustration only. Actual figures depend on individual circumstances, contract terms, and HMRC determinations. IR35 status is a legal matter—seek professional advice. Last reviewed: September 2026 (2026/27 tax year).
What this means for your day rate
Inside IR35 costs roughly 1–6% of your net take-home compared with the same day rate worked outside, on 2026/27 rates. The gap is much smaller than it used to be: employer NI is 15% above a £5,000 threshold, but dividends are now taxed at 10.75% / 35.75% / 39.35%, so the limited-company route keeps less than it did before April 2026. On a £500/day rate over 220 days, inside IR35 nets about £65,600 against roughly £67,500 outside.
The practical takeaway: if a client moves a contract inside IR35, a rate uplift of about 3–6% is usually enough to keep your net pay flat — not the 25–30% often quoted. Outside IR35 still wins on flexibility, pension contributions made straight from the company, and legitimate expenses, so model your own numbers rather than relying on rules of thumb.
What Is IR35?
IR35 is UK tax legislation designed to identify contractors who work like employees but operate through an intermediary (usually a limited company) to reduce their tax liability. The rules determine whether a contractor should be taxed as an employee or can benefit from the tax efficiencies of self-employment.
If you're inside IR35, you're treated as an employee for tax purposes, meaning PAYE income tax and National Insurance are deducted from your payments. If you're outside IR35, you can pay yourself through salary and dividends, typically resulting in significantly higher take-home pay.
Inside vs Outside IR35 Explained
Inside IR35
- •Taxed as an employee (PAYE)
- •Both employee and employer NI deducted from rate
- •No dividend tax advantages
- •Typically 32-45% effective deduction rate
- •No employment rights (holiday, sick pay)
Outside IR35
- •Pay corporation tax on profits
- •Take small salary + dividends
- •Dividends taxed at lower rates than income
- •Typically 28-44% effective deduction rate (2026/27)
- •More control over when you take income
Why Take-Home Pay Drops Inside IR35
The significant drop in take-home pay inside IR35 comes from multiple factors:
1. Employer's National Insurance (15%)
Since April 2025 employer NI is 15% on earnings above the £5,000 secondary threshold, and it comes out of your assignment rate before you see any money. On a £500/day rate over 220 days (£110,000), that's roughly £13,700 a year—money you'd keep outside IR35.
2. Employee's National Insurance (8%)
Deducted from your gross salary. Outside IR35, you'd typically only pay NI on a small salary taken at the threshold.
3. Full Income Tax on All Earnings
All your income is subject to income tax rates (20%, 40%, 45%). Outside IR35, dividends are taxed at lower rates (10.75%, 35.75%, 39.35%).
4. Umbrella Company Fees
If using an umbrella company, they charge weekly fees (typically £20-£30) and may also charge for additional services. From 6 April 2026, the agency or end client is legally responsible for the PAYE an umbrella operates, which has pushed non-compliant schemes out of the market.
Alternatives to Umbrella Working
PAYE Through Your Limited Company
You can remain inside IR35 while using your limited company. The fee-payer deducts PAYE before paying your company. This maintains company benefits like pension contributions but has similar tax outcomes to umbrella.
Seek Genuinely Outside IR35 Contracts
Some roles are legitimately outside IR35. Look for contracts with genuine substitution rights, no control over how/when you work, and no mutuality of obligation.
Permanent Employment
If most roles in your field are inside IR35, permanent employment may offer similar net pay plus benefits like holiday, sick pay, and pension contributions.
Statement of Work (SoW) Contracts
Project-based contracts with defined deliverables and outcomes may be more likely to fall outside IR35, though each contract must be assessed individually.
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