IR35 Calculator

1. Enter your day rate in pounds.
2. Enter the number of working days per year (typically 220).
3. Enter your annual allowable business expenses (software, training, equipment).
4. Compare your take-home pay inside IR35 (umbrella) vs outside IR35 (limited company).

Inside IR35 vs Outside IR35: How the Tax Works

When you are inside IR35, your contract income is treated as employment income. The umbrella company (or your limited company using the deemed payment calculation) deducts employer National Insurance (15%), apprenticeship levy (0.5%), and then applies PAYE income tax and employee National Insurance to what remains. You receive no benefit from dividends, expenses are severely restricted, and your effective tax rate is typically 35-45%.

Outside IR35, you operate through a limited company. You pay yourself a low salary (typically £12,570, the personal allowance) and take the rest as dividends. Dividends are not subject to National Insurance, and you only pay corporation tax (19-25%) on profits. The overall effective tax rate is typically 25-35%, saving contractors thousands per year.

2025/26 Changes Affecting Contractors

From April 2025, employer National Insurance increased from 13.8% to 15%, and the secondary threshold dropped from £9,100 to £5,000. This directly increases the cost of being inside IR35 and makes outside IR35 status even more valuable.

Also see the Dividend vs Salary Calculator for outside IR35 optimisation, or the UK Take-Home Pay Calculator for PAYE calculations.