Contractor Tax Tool
IR35 Calculator — Inside vs Outside Take-Home Pay
Tax Year
2026/27
Authority
HMRC
IR35 can cost contractors tens of thousands of pounds a year. Enter your annual contract value or day rate to see a side-by-side comparison of your take-home pay inside and outside IR35 using 2026/27 HMRC rates. The calculator applies the deemed salary rules, corporation tax, and dividend tax so you can see the real difference in minutes.
Your Contract Details
Agencies typically pass employer NI (13.8%) onto contractors. Many use a lower effective rate after negotiation — 5% is a common blended estimate.
Annual difference
£0 more per year outside IR35
Inside IR35
Off-payroll / PAYE
Annual net pay
£0
Monthly
£0
Tax + NI paid
£0
Income Tax
£0
Employee NI
£0
Deemed Salary
£0
Contract × 95% after employer NI
Outside IR35
Ltd Company (PSC)
Annual net income
£0
Monthly
£0
Total Tax
£0
Corp Tax
£0
Dividend Tax
£0
Director Salary
£0
Optimised to personal allowance
How the IR35 calculator works
Enter your annual contract value (or switch to day rate mode and enter your day rate and working days). The calculator runs two separate tax calculations simultaneously and displays them side by side.
Inside IR35: The calculator applies the deemed salary rules. First it deducts the employer NI contribution that the agency typically passes on to the contractor. Then it applies the 5% expenses allowance that HMRC permits under off-payroll rules. The remaining amount is your deemed salary — taxed using standard PAYE bands (income tax 20%/40%/45%) plus employee National Insurance (8% on earnings between £12,570 and £50,270, then 2% above).
Outside IR35: The calculator models the optimal limited company structure. It takes your contract value, deducts your allowable business expenses, then pays you a director's salary of £12,570 (equal to the personal allowance, so no income tax or NI is due on it). The remaining revenue is subject to corporation tax at 19% (for profits up to £50,000) or with marginal relief up to 25% for profits over £250,000. The post-corporation-tax profit is then paid as dividends. The first £500 of dividends is tax free; above that you pay 8.75% at basic rate, 33.75% at higher rate, and 39.35% at additional rate.
The difference between the two net figures is highlighted in the green (or red) banner at the top of the results. The full breakdown accordion shows every step of the calculation for both scenarios.
What you need to know about IR35 in 2026/27
IR35 — formally the Intermediaries Legislation — has been part of UK tax law since 2000. It targets contractors who operate through a personal service company (PSC) but whose working relationship with a client is effectively one of employment. HMRC's concern is that contractors avoid paying employee income tax and NI by routing income through a company, which is taxed more favourably.
Who decides IR35 status? For public sector engagements (from April 2017) and medium or large private sector companies (from April 2021), the end client decides IR35 status. Small private sector clients (fewer than 50 employees, turnover under £10.2m, or balance sheet under £5.1m) still leave the decision to the contractor's own company.
The three tests: HMRC applies three key employment status tests. Substitution — can you send a replacement worker? Control — does the client control how and when you work? Mutuality of obligation — is there an ongoing obligation for the client to offer work and for you to accept it? Strong rights of substitution and low control both point towards outside IR35.
Off-payroll rules (Chapter 10 ITEPA 2003): When you are inside IR35 in a medium or large private sector engagement, the fee-payer (the agency or engager) must operate PAYE. They deduct income tax and employee NI from your gross contract fee before paying your PSC. The 5% expenses allowance remains available to private sector contractors in 2026/27.
Umbrella companies: Many contractors working inside IR35 use an umbrella company rather than maintaining their own PSC. You become an employee of the umbrella, which handles PAYE. You receive holiday pay and statutory benefits, but take-home pay is typically similar to (or slightly less than) being inside IR35 through your own PSC. Use our PAYE vs Umbrella vs Ltd calculator to compare all three arrangements.
CEST tool: HMRC's Check Employment Status for Tax tool is available free on GOV.UK. It asks a series of questions about working practices and gives a determination. HMRC will stand by the result if you answer honestly. However, around 20% of queries result in "unable to determine" — in which case you should seek a specialist IR35 review.
Frequently asked questions about IR35
What is IR35 and does it apply to me?
IR35 is a set of tax rules that apply to contractors who work like an employee for a client but operate through a limited company or personal service company (PSC). If HMRC decides your working arrangements resemble employment, you are classed as "inside IR35" and taxed like an employee. It affects contractors working for public sector bodies and for private sector companies with more than 50 employees. Smaller clients still leave the status decision to the contractor.
How much more do contractors earn outside IR35?
On a typical £80,000 contract with £3,000 expenses, being outside IR35 typically results in £8,000–£12,000 more per year. This is because outside IR35 you pay corporation tax (19–25%) and dividend tax (8.75% basic rate) instead of income tax and employee NI on a deemed salary. Use the calculator above for a precise figure based on your contract value.
What happens if HMRC says I am inside IR35?
If you are inside IR35, the fee-payer (usually the agency) must deduct income tax and employee NI from your gross contract fee before paying you. A 5% allowance is deducted for administrative expenses. You cannot claim business expenses in the normal way. Your take-home pay is broadly equivalent to being an employee, though you still bear the costs of running your limited company with none of the employment benefits.
Can I still use a limited company if I am inside IR35?
Yes, but there is little financial advantage. Your income is taxed via PAYE before it reaches your company. You can still pay yourself a small director's salary and draw remaining income as dividends, but the double taxation largely eliminates the benefit. Many contractors choose to work through an umbrella company instead when inside IR35, which simplifies administration and provides statutory employment benefits.
What is the 5% expenses allowance inside IR35?
HMRC allows a 5% notional deduction from your gross contract income before calculating the deemed salary for private sector IR35 purposes. This is intended to cover the costs of running your PSC — accountancy, insurance, subscriptions and so on. It is not an allowance for genuine reimbursable expenses. The 5% allowance was removed for public sector contractors in 2017 and does not apply if the engager is a public authority.
How do I check my IR35 status?
HMRC provides a free tool called CEST (Check Employment Status for Tax) at GOV.UK. It asks questions about substitution rights, control and mutuality of obligation and gives a determination. HMRC will stand behind the result if you answer honestly. For high-value or complex contracts, consider a specialist IR35 contract review from a qualified tax adviser who can assess your actual working practices rather than just the written contract.
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