Last updated: April 2026 · Reviewed by Alex Morgan, CFP

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

IR35 — or the off-payroll working rules — determines whether a contractor working through a limited company must pay income tax and National Insurance as if they were an employee. If you are outside IR35, you can extract income as a salary plus dividends through your limited company, which is substantially more tax-efficient. If you are inside IR35, the fee payer deducts income tax, employee NI, and employer NI (15% in 2025/26) from your contract fee before paying your company. Enter your day rate and working pattern below to see the exact difference in take-home pay under both scenarios for the 2025/26 tax year.

This calculator provides estimates for informational purposes only and does not constitute financial advice. Consult a qualified financial advisor for decisions based on your individual circumstances.

What Is IR35?

IR35 takes its name from the Inland Revenue press release numbered IR35, issued in March 1999. The legislation that followed — the Intermediaries Legislation — came into force in April 2000. Its purpose was to prevent "disguised employment": arrangements where someone who would, under the usual common-law tests, be an employee instead provides their services through a personal service company (PSC) or other intermediary, thereby paying less tax and NI than an employee would.

The 2000 legislation (now in Chapter 8 of ITEPA 2003) placed the responsibility for assessing IR35 status on the contractor's own company. If the arrangement looked like employment, the company had to pay the contractor a "deemed salary" and operate PAYE accordingly. In practice, compliance was low. The reformed off-payroll rules — Chapter 10 of ITEPA 2003 — shifted the determination and compliance burden to the engager (end client) and fee payer, first for public sector in 2017 and then for medium and large private sector businesses in April 2021.

Who Determines Your IR35 Status?

Since April 2021, the entity responsible for determining IR35 status depends on who you are contracting with:

• Medium or large private-sector client: The end client determines status and must issue a Status Determination Statement (SDS) to the contractor and to the fee payer (agency). If status is inside IR35, the fee payer operates PAYE and deducts employer NI.
• Public sector client: Same as above — applies since April 2017.
• Small private-sector client: The contractor's own intermediary still self-determines under the original Chapter 8 rules. The 5% allowance still applies in this case.

A client is "small" under the Companies Act 2006 definition if it meets two of three criteria: fewer than 50 employees, annual turnover no more than £10.2 million, and balance sheet total no more than £5.1 million. Newly incorporated companies are treated as small in their first year.

Outside IR35 — Salary + Dividends via Limited Company

When a contractor is outside IR35, the contract income flows into their limited company as revenue. The most tax-efficient extraction strategy is to pay a minimal director's salary — typically £12,570 in 2025/26 to utilise the full personal allowance — and extract the remaining profit as dividends. This is why the structure is so tax-efficient:

• Director salary of £12,570: No income tax (within personal allowance) and no NI because £12,570 is exactly at the primary NI threshold. A sole director who is the only employee can claim the Employment Allowance for any small employer NI liability on the salary.
• Corporation Tax on company profit: After salary, expenses, and pension, the remaining profit is subject to Corporation Tax. For 2025/26 the small profits rate is 19% on profits up to £50,000. The main rate is 25% for profits above £250,000. Between those thresholds, marginal relief applies, producing an effective rate that tapers from 19% to 25% (approximately 26.5% on marginal income).
• Dividends from after-tax profit: The first £500 of dividend income is within the dividend allowance (tax-free). Above that, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) — substantially lower than equivalent employment income.
• Deductible expenses: Allowable business expenses — equipment, professional subscriptions, accountancy fees, travel to temporary workplaces — reduce company profit and therefore Corporation Tax. Inside IR35, expenses are not deductible.

Inside IR35 — Deemed Employment Payment

When a contract is inside IR35 and the end client is medium or large, the fee payer must operate PAYE as if the contractor were a direct employee. The mechanics are:

1. Employer NI is deducted first: The fee payer pays employer National Insurance (15% in 2025/26 on gross fee minus the secondary threshold of £5,000) on top of — or rather out of — the contract fee. HMRC requires the fee to be treated as "gross of employer NI": employer NI is effectively extracted from the fee before calculating the contractor's deemed pay.
2. Deemed pay = gross fee minus employer NI: This is the deemed employment income on which PAYE income tax and employee NI (8% up to the Upper Earnings Limit of £50,270, 2% above) are then applied.
3. No 5% allowance: Since April 2017 (public sector) and April 2021 (private sector medium and large), the 5% administration allowance no longer applies. The full contract fee — less employer NI — is deemed employment income. There are no allowable deductions for business expenses.
4. Pension contributions: A contractor inside IR35 can still make personal pension contributions, but these are made from post-tax income, not pre-Corporation Tax income. The tax relief is effectively the same (20–45% depending on marginal rate) but the mechanism is less efficient than the outside-IR35 route where pension contributions reduce company profit before Corporation Tax.

The combined effect of employer NI plus income tax plus employee NI often results in an effective tax rate on gross fee income of 40–52%, compared to 22–35% for a similarly-paid outside-IR35 contractor.

Worked Example: £500/day × 220 Days = £110,000 Contract

Using the calculator defaults — £500 day rate, 220 days worked, £3,000 expenses, £0 pension:

OUTSIDE IR35 (Limited Company)
  Gross revenue:                       £110,000
  Less business expenses:              −£3,000
  Less director salary:                −£12,570
  Company profit before CT:             £94,430
  Corporation Tax (approx):            −£21,720
    (19% on first £50k = £9,500;
     marginal relief band on next
     £44,430 ≈ £12,220 additional CT)
  After-CT profit:                      £72,710
  Director salary (post-tax):          +£12,570
  Dividend tax on £72,710:
    £500 allowance free
    £37,200 × 8.75% =                  −£3,255
    £35,010 × 33.75% =                −£11,816
  Net take-home (approx):               £70,209

INSIDE IR35 (Deemed Employment)
  Gross revenue:                       £110,000
  Employer NI (15% of £105,000):      −£15,750
  Deemed pay:                           £94,250
  Income tax:
    £0–£12,570 @ 0%          =         £0
    £12,571–£50,270 @ 20%    =        £7,540
    £50,271–£94,250 @ 40%   =        £17,592
  Total income tax:                    −£25,132
  Employee NI:
    £12,571–£50,270 @ 8%     =        £3,016
    £50,271–£94,250 @ 2%     =          £880
  Total employee NI:                   −£3,896
  Net take-home (approx):               £65,222

IR35 costs this contractor approx £4,987/year in this example.

The actual figures vary with expenses, pension contributions, and the exact Corporation Tax marginal relief calculation. Use the calculator above to model your specific situation.

Why IR35 Costs 15–20% of Take-Home

The core reason for the substantial tax difference is that outside IR35 income passes through two separate tax events — Corporation Tax on company profit, then dividend tax on extraction — both of which are at lower rates than the equivalent employment taxes. Inside IR35, the entire gross fee (minus employer NI) is taxed at employment rates: income tax at 20–40–45% plus employee NI at 8–2%.

The employer NI deduction from inside IR35 is particularly damaging because it reduces the gross fee before any other calculation. A contractor on a £110,000 gross fee loses £15,750 in employer NI immediately — money that an outside-IR35 contractor retains in their company.

CEST Tool and Status Determination Statements

HMRC's Check Employment Status for Tax (CEST) tool is available online at gov.uk. It asks a series of questions about the working arrangement — substitution rights, control, financial risk, equipment provision, and integration — and produces a determination of "employed," "self-employed," or "unable to determine." HMRC has committed to standing by CEST results provided the information entered is accurate, honest, and complete.

When a medium or large client determines a contractor's status, they must issue a Status Determination Statement (SDS) in writing to both the contractor and the fee payer. The SDS must state the determination and give reasons. Contractors who disagree with an SDS can submit a formal written disagreement to the client, who must respond within 45 days. If the client fails to respond, the liability for PAYE and NI shifts back to the client.

Professional advice from an IR35 specialist or employment status solicitor is strongly recommended before accepting or challenging any determination, as the financial stakes are substantial. HMRC can investigate arrangements going back up to six years and can assess unpaid tax, interest, and penalties.

Frequently Asked Questions