IR35 Take-Home Pay Calculator

IR35 is the tax legislation that decides whether a contractor working through a limited company should be taxed as an employee. Where a contract falls inside IR35, the fee-payer, usually the agency or the end client, must deduct income tax and employee National Insurance before paying you. The rules put employer NI on top of the fee paid to your company, but many inside roles are paid through an umbrella company instead: the agency pays the umbrella one rate and employer NI comes out of it before your salary is worked out. This calculator uses the umbrella approach.

Outside IR35 the arrangement looks quite different. The contractor pays themselves a low salary, typically the NI Primary Threshold of £12,570, and takes the remaining profit as dividends. Dividends are taxed at 10.75% at the basic rate, 35.75% at the higher rate and 39.35% at the additional rate, after a £500 dividend allowance. Before anything is distributed the company pays Corporation Tax at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between. Once salary and dividends pass £100,000 the Personal Allowance tapers away and the salary itself is taxed at 20%.

This calculator compares take-home pay inside and outside IR35 for a given day rate. It shows the annual difference between the two after Corporation Tax, dividend tax, employer NI, employee NI and income tax, so you can see what a status decision is worth in cash rather than in principle. The outside figure assumes all profit is paid out as dividends in the same year, and your expenses are deducted only outside IR35. Apprenticeship Levy and umbrella fees are not included.

Status turns on the facts of the working relationship rather than on the wording of the contract. HMRC and the tribunals lean on three tests. Control asks whether the client directs how, when and where you work, or whether you genuinely choose. Substitution asks whether you can send someone else in your place and whether that right is real rather than decorative. Mutuality of obligation asks whether there is a continuing duty to offer and to accept work. Financial risk, owning your own equipment, fixing defects at your own cost, integration into the client's business and exclusivity all feed in. The HMRC CEST tool gives an indicative answer, but tribunals have overruled it many times, so borderline contracts deserve a review from a specialist such as Qdos or Bauer & Cottrell.

Who makes the decision depends on the size of the client. Since April 2021 in the private sector, and 2017 in the public sector, medium and large clients determine status and must issue a Status Determination Statement. The fee-payer, normally the agency or the end client, carries liability for unpaid tax if the determination proves wrong. Small clients are exempt, meaning companies meeting 2 of 3 conditions: turnover of not more than £15m, a balance sheet of not more than £7.5m and not more than 50 employees, the limits for financial years beginning on or after 6 April 2025. Where the client is small, you determine your own status and you carry the risk. The offset rules introduced in April 2024 let HMRC set tax the contractor has already paid against any liability assessed on the employer.

The cash gap is smaller than many contractors expect once all profit is paid out. On £450 a day for 220 days, or £99,000 a year, with £5,000 of company costs, the calculator gives take-home of about £62,376 outside IR35 and £60,866 inside, a difference of about £1,510. Corporation Tax and the 35.75% higher dividend rate already take a large share outside the rules, and on the same assumptions the two figures are level at about £750 a day, with inside slightly ahead above that. What you lose inside is mostly flexibility: dividends, most travel and subsistence claims, the Annual Investment Allowance, and the ability to leave profit in the company and draw it in a lower-tax year.

If a contract is inside and the client will not move, several responses remain open. Negotiating a higher day rate is the obvious one, and it helps to agree first whether the rate goes to an umbrella, with employer NI taken out of it, or to your own company with employer NI paid on top. Working through an umbrella company is simpler than running statutory deemed employment through your own limited company and produces similar net pay. Umbrella pension contributions stay deductible for both income tax and NI, so pushing more into the pension is the main lever left. Beyond that, look for genuinely outside roles, smaller exempt clients and statement-of-work projects with clear deliverables, or weigh up a permanent position, which can pay similarly once pension, holiday and sick pay are counted. Ask for the written determination either way.