IR35 Calculator
Compare a contractor's take-home inside versus outside IR35 for 2026/27 — see what off-payroll status costs on any day rate.
The IR35 calculator calculates how much an inside IR35 contract costs once PAYE and National Insurance are applied, compared with working outside IR35. The IR35 calculator uses the day rate or contract value you enter to determine the financial impact of IR35 status. The IR35 calculator calculates the deemed employment payment, deducts PAYE and NIC for inside IR35 contracts, and compares the result with the net income from outside IR35 contracts. The IR35 calculator serves contractors and hirers who assess costs, especially those working under umbrella companies or limited companies. The IR35 calculator shows the financial effects of being inside versus outside IR35.
The Contract
IR35 Difference
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Enter your details to see the breakdown.
Estimates only — verify with HMRC or a qualified accountant.
IR35 is the UK's off-payroll working legislation that identifies disguised employment, where a contractor should be taxed like an employee. Inside IR35 means the engagement is treated as employment and taxed through PAYE, while outside IR35 allows taxation through a limited company with salary and dividends. IR35 status depends on control, substitution rights, and mutuality of obligation in the working arrangement. IR35 affects tax liabilities and compliance responsibilities for contractors and hirers. The end client determines IR35 status and issues a Status Determination Statement.
Inside IR35 contracts result in higher tax deductions than outside IR35 contracts. Contractors and hirers manage IR35 with accurate status determinations and clear contractual terms. The IR35 rules changed with the 2021 private-sector reform, which shifted status determination to the end client. Accurate calculations for 2026/27 require the correct tax year and rates, including adjustments for changes in tax legislation. The correct tax year and rates keep contractors and hirers compliant and financially informed.
What is the IR35 calculator?
The IR35 calculator is an online tool that calculates the take-home and total cost of a contract under inside IR35 rules. The IR35 calculator requires inputs such as the day rate or annual contract value, IR35 status (inside or outside), and the relevant tax year. The IR35 calculator outputs the deemed employment pay, the PAYE and National Insurance Contributions (NIC) deducted under inside IR35, and the net position compared with outside IR35.
The IR35 calculator helps contractors estimate their tax liability and net income when working through a limited company or an umbrella company. The IR35 calculator compares scenarios both inside and outside IR35 regulations for the current tax year. Contractors input particular parameters and gauge the financial impact of IR35 status before accepting a contract.
How does the IR35 calculator work?
The IR35 calculator applies PAYE income tax and National Insurance to the contract value when the engagement falls inside IR35. The IR35 calculation follows several steps to produce an accurate computation. First, the IR35 calculator takes the contract value and deducts allowable expenses to determine the deemed employment payment. The IR35 calculator then subjects the deemed employment payment to income tax and Class 1 National Insurance Contributions (NIC) as if the worker were an employee. The IR35 calculation reflects the tax position for contractors working inside IR35 and keeps them compliant with the tax regulations.
The IR35 calculator adjusts the calculation based on the selected IR35 status and the tax year, and produces results for each scenario. When a contract is assessed as outside IR35, the IR35 calculator taxes the income through the contractor's limited company instead. Outside IR35 income takes a combination of salary and dividends, which are taxed at lower rates than full PAYE deductions. The IR35 calculator accounts for these variables and shows potential tax liabilities under different IR35 conditions.
How does the calculator handle inside and outside IR35?
Inside IR35, the calculator taxes income as employment through PAYE, while outside IR35, the calculator leaves income to be taxed through the contractor's limited company. The inside IR35 route incurs employer and employee National Insurance Contributions (NIC) alongside income tax. The outside IR35 route permits income to be taken as a combination of salary and dividends, which produces lower combined deductions. The distinction between the two routes affects contractor take-home pay and tax liabilities.
How Much Will Inside IR35 Cost You?
Inside IR35
£66,414
39.6% effective
Outside IR35
£72,228
34.3% effective
Difference
£5,814
per year
An inside IR35 contract loses a substantial share of gross value to PAYE and National Insurance, around a third of the contract value. For example, a £500 day rate worked over 220 days per year results in an annual revenue of £110,000. Under inside IR35, the contractor takes home approximately £66,414, compared with £72,228 when working outside IR35, a reduction of £5,814 annually. The effective tax rate inside IR35 is approximately 39.6%, compared with 34.3% outside IR35.
The drivers of the amount lost to taxes include the contract or day rate, the deemed employment payment after allowable deductions, and the income tax and NIC bands that apply. Inside IR35, the full revenue flows through PAYE, with employer National Insurance at 15%, employee NI, and income tax deductions. The take-home reduction represents the contractor's loss, separate from the hirer's own employer NI cost, which adds approximately 15% on top of the contract value for engagements falling inside IR35.
Is the IR35 calculator accurate?
Yes, the IR35 calculator is accurate when the contract value, IR35 status, and tax year are entered correctly. The IR35 calculator applies current PAYE income tax and National Insurance rates to the deemed employment payment for inside IR35 engagements. The IR35 calculator output reflects the actual tax treatment under the off-payroll working rules. The IR35 calculator excludes engagement-specific reliefs, umbrella company margins, and pension contributions unless the user enters these variables. For complex cases or where large deductions apply, contractors should consult a qualified accountant to validate the IR35 calculator output against their actual tax position. The IR35 calculator provides guidance rather than a definitive tax assessment.
What is the formula behind inside versus outside IR35?
The formula behind inside versus outside IR35 uses different taxation approaches based on the contractor's status. Inside IR35 net income equals the deemed employment payment minus income tax and Class 1 National Insurance. Outside IR35 net income comprises salary plus dividends, taxed through the contractor's limited company. The status difference affects how much of the contract value the contractor retains.
Inside IR35
Deemed payment − Income Tax − Class 1 NIC
Outside IR35
Salary + Dividends (via limited company)
Each term in the formula carries a precise meaning. The contract value represents the total earnings from the engagement. The deemed employment payment is the taxable amount after allowable deductions, around 5% of the contract value under IR35 rules. Income tax applies at standard rates: 20% basic, 40% higher, and 45% additional rates. National Insurance contributions include employee NIC at 12% on earnings between £12,570 and £50,270, then 2% above, and employer NIC at 15% on earnings above the secondary threshold.
A practical example shows these differences. For a £500 day rate over 220 days, the annual contract value is £110,000. Outside IR35, the contractor might take a £12,570 salary and the rest as dividends, which results in a £72,228 take-home after 19% corporation tax and a 34.3% effective tax rate. Inside IR35, the same amount is taxed through PAYE, with deductions for employer and employee NIC, which leaves a net income of £66,414 and a 39.6% effective tax rate.
When should you use an IR35 calculator?
Use the IR35 calculator before accepting a contract to compare the inside and outside IR35 outcomes at the same rate. The IR35 calculator serves contractors and hirers at several points in the contracting lifecycle.
Typical Moments to Use an IR35 Calculator
Status Determination Changes
When a contract status shifts to inside IR35, the IR35 calculator measures the financial impact.
Comparing Umbrella and Limited Company Routes
Contractors evaluate which route offers better financial benefits under current conditions.
Budgeting Contractor Costs as a Hirer
For hirers, the IR35 calculator shows the true cost of hiring a contractor under IR35 rules.
The IR35 calculator lets both contractors and hirers see the cost impact of the off-payroll rules before signing. The IR35 calculator models take-home pay and total engagement costs under different IR35 scenarios, so both parties make informed decisions about contract rates, employment structures, and budgeting.
Who needs an IR35 calculator among umbrella company workers?
Umbrella company contractors need the IR35 calculator to determine their take-home pay after deductions. The IR35 calculator shows umbrella workers the impact of PAYE, National Insurance Contributions (NIC), and the umbrella company's margin on their earnings.
Transition from Limited Company
Contractors moving from a limited company to an umbrella under inside IR35 use the IR35 calculator to compare financial outcomes.
Inside IR35 Contracts
The IR35 calculator helps when a contract's IR35 status changes, so contractors measure the financial impact of moving inside IR35.
Financial Planning
For umbrella workers, the IR35 calculator shows net income and highlights the deductions applied to their contract value, which supports financial planning.
Umbrella contractors who understand these deductions make informed decisions about their employment arrangements.
How does an IR35 calculator compare umbrella vs limited company?
The IR35 calculator contrasts the umbrella route, where all income is taxed as employment through PAYE, with the limited company route, where income is divided between salary and dividends. In the umbrella route, deductions include income tax, employee National Insurance, and the umbrella's margin. In the limited company route, deductions involve corporation tax and dividend tax on distributed profits. Outside IR35, the limited company route is more tax-efficient because profit extraction stays flexible. Inside IR35, the umbrella route becomes more favorable because the entire income is taxed as employment income. The comparison depends on the contract's confirmed IR35 status, which dictates the applicable tax treatment.
What is an umbrella company under IR35?
An umbrella company is a payroll intermediary that employs contractors and processes their pay through PAYE (Pay As You Earn). An umbrella company deducts income tax, employee National Insurance Contributions (NIC), and employer NIC from the assignment rate, along with its own margin. Umbrella employment is the standard route for inside IR35 contracts because the worker is taxed as an employee. Umbrella employment means the contractor receives net pay without managing their own limited company.
What Is IR35?
IR35 is the UK off-payroll working legislation that decides whether a contractor working through an intermediary should be taxed as an employee. IR35 targets disguised employment, where a worker behaves like an employee but is taxed as a contractor. When a contract falls inside IR35, the tax is applied as if the worker were on the payroll, so the correct income tax and National Insurance contributions are made. IR35 identifies disguised employees and makes them pay the appropriate amount of tax, though IR35 remains a complex system that HMRC uses to categorize contractors within its scope.
What is the difference between inside and outside IR35?
Inside IR35 means the engagement is treated as employment and taxed through PAYE, while outside IR35 means the contractor is genuinely self-employed and taxed through their limited company. The difference rests on the working practices and contract terms, not the job title.
How Do the Off-Payroll Working Rules Work?
The off-payroll working rules require the party paying the contractor to apply PAYE and National Insurance Contributions (NIC) when the engagement is inside IR35. Since the 2021 private-sector reform, the responsibility for determining IR35 status has shifted to the end client, not the contractor. The off-payroll working rules require the end client to issue a Status Determination Statement for each contractor engagement, which clarifies whether IR35 applies. Once the status is determined, the fee-payer, the agency or client, deducts the correct PAYE and NIC from the contractor's payment. The off-payroll working rules tax contractors inside IR35 in the same way as employees and bring tax obligations in line with employment-like engagements.
What Determines Your IR35 Status?
IR35 status is determined by three main tests: control, personal service or substitution, and mutuality of obligation. Control examines the extent to which the client dictates the work's execution, including what, how, and when tasks are performed. Personal service or substitution assesses whether the contractor must personally perform the work or can delegate it to a substitute. Mutuality of obligation refers to the obligation of the client to offer work and the contractor to accept it.
The written contract and actual working practices together decide whether an engagement falls inside or outside IR35. HMRC evaluates these factors in full, considering both the contractual terms and the real-world working relationship.
What is the Importance of IR35 for Contractors and Hirers?
IR35 dictates the tax position of a contract and assigns compliance responsibility. Contractors under IR35 face reduced take-home pay from PAYE and National Insurance deductions, which lower net income. For hirers, inside IR35 engagements create employer National Insurance costs and the risk of non-compliance when the status is misclassified. Since the 2021 private-sector reform, medium and large clients are responsible for determining IR35 status and are liable for any errors. Both parties who understand IR35 manage financial impacts and compliance risks.
What is the purpose of the off-payroll rules?
The off-payroll rules exist to stop disguised employment, where a worker behaves like an employee but is taxed as a contractor. The off-payroll rules require the correct income tax and National Insurance to be paid on employment-like engagements. The off-payroll rules prevent the misuse of contractor status to avoid higher tax liabilities associated with employee status. The off-payroll rules classify workers accurately, maintain fair tax contributions, and reduce the risk of non-compliance penalties for both contractors and hiring entities.
Who Does IR35 Apply To?
IR35 applies to contractors who provide services through an intermediary, such as a personal service company, to an end client. IR35 targets contractors operating through personal service companies (PSCs) or similar structures and makes them pay taxes like employees when the working relationship resembles employment. Public sector and medium or large private sector clients fall within the off-payroll rules and must assess IR35 status and apply the appropriate tax deductions. Small companies are exempt from the off-payroll rules, which leaves the responsibility for IR35 status determination and tax obligations with the contractor's limited company.
Who Decides Your IR35 Status?
Since the 2021 reform, the end client decides the IR35 status and issues a Status Determination Statement (SDS). The 2021 reform shifted the responsibility for determining IR35 status from contractors to end clients in medium and large private-sector organizations and aligned them with public-sector rules established in 2017. Once the IR35 status is determined, the fee-payer in the contractual chain deducts the appropriate PAYE income tax and National Insurance Contributions (NIC) when the engagement is classified as inside IR35.
Who Is Exempt from IR35?
Contracts engaged by a small company that meets the small-company exemption, and genuinely self-employed contractors working outside IR35, are exempt from IR35. A small company, as defined under the Companies Act, is one that meets at least two of the following criteria: a turnover of not more than £10.2 million, a balance sheet total of not more than £5.1 million, and no more than 50 employees. When a contractor provides services to such a small company, the responsibility for determining IR35 status and any associated tax liability rests with the contractor's own limited company. Contracts with end clients based wholly overseas, without a permanent UK establishment, may fall outside the scope of the UK off-payroll working rules.
How Much Does Inside IR35 Cost a Contractor?
Inside IR35 reduces a contractor's net income by the income tax and National Insurance applied to the deemed employment payment. Inside IR35 can result in a loss of around 15-20% of take-home pay compared with outside IR35, rising to as much as 30-33% for contractors who are tax-inefficient. The cost impact increases with the day rate and the duration spent inside IR35. Higher rates push the deemed payment into higher tax bands and trigger both employee and employer NIC contributions. Contractors see a large reduction in their net income when operating under inside IR35 rules.
Inside IR35 on a £500 Day Rate
An inside IR35 contract on a £500 day rate results in large tax deductions. For a typical working year of 220 days, a £500 day rate equates to an annual contract value of £110,000. The contractor's take-home pay is approximately £66,414. The take-home figure accounts for income tax, employee National Insurance, and employer National Insurance contributions. The effective tax rate for a £500 day rate inside IR35 is approximately 39.6%. Operating outside IR35 on the same rate yields a higher net income of £72,228, a reduction of £5,814 when working inside IR35.
Inside IR35 Versus Outside IR35
The comparison between inside and outside IR35 reveals distinct differences in taxation and responsibility. The following table outlines the key features of each scenario according to HMRC off-payroll working rules:
| Feature | Inside IR35 | Outside IR35 |
|---|---|---|
| How taxed | Taxed as an employee via PAYE (income tax + Class 1 NIC) | Taxed as a business via limited company (salary + dividends + Corp Tax) |
| Who deducts tax | The fee-payer (client/agency) or umbrella company deducts at source | The contractor handles their own tax via their limited company |
| Income tax and NIC | Higher combined deductions: Income Tax + Employee NIC + Employer NIC | Lower combined deductions: Corporation Tax + Dividend Tax |
| Take-home position | Significantly lower (around ~30% less of gross) due to full employee tax regime | Generally higher due to dividend tax advantages and lower employer costs |
| Status responsibility | Decided by the end client (who issues a Status Determination Statement) | Contractor determines status (or is exempt if genuinely self-employed) |
The table above shows contractors and hirers the financial and administrative effects of IR35 status.
How Can Contractors and Hirers Manage IR35?
Contractors and hirers manage IR35 through several steps. Accurate status determination, clear contracts, and aligned working practices are the main levers for compliance. Contractors and hirers focus on these factors to determine whether engagements fall inside or outside IR35.
Accurate Status Determination
Accurate status determination is the first step in managing IR35. Contractors should verify their status against actual working practices, not just job titles or paperwork. Hirers should issue a defensible status determination using the current off-payroll working rules. Accurate status determination makes the fee-payer apply PAYE and NIC correctly when the role is inside IR35.
Clear Contracts
Contracts must reflect the working relationship. Contracts should outline the terms that support the status determination, detailing the level of control, substitution rights, and mutuality of obligation. Clear contracts reduce the risk of disputes and make both parties aware of their obligations.
Aligned Working Practices
Working practices should match the contract terms to avoid discrepancies that could lead to reclassification. Contractors must perform duties as outlined in the contract, while hirers should confirm that the day-to-day management aligns with the agreed terms.
The IR35 calculator lets both contractors and hirers model the cost of engagements inside versus outside IR35. The IR35 calculator shows the financial effects before committing to a contract and supports informed decisions about contract structures and rates.
How IR35 Affects Employer National Insurance
Inside IR35 makes the fee-payer or umbrella company liable for employer National Insurance on the deemed employment payment, just as for a normal employee. Employer National Insurance liability requires the entity operating PAYE, the end client, an agency, or an umbrella company, to calculate and pay employer National Insurance contributions on top of the contractor's gross payment. The employer NI rate is currently set at 15% on earnings above the secondary threshold. Employer National Insurance increases the total expense of hiring a contractor under an inside IR35 contract and adds to the employment-style tax treatment.
For hirers, the employer-side cost matters when assessing the total financial impact of an inside IR35 engagement. The Employer National Insurance Calculator models these costs accurately. Hirers input the relevant figures and estimate the full tax position, including employer NI, income tax, and employee NI on the deemed payment. The Employer National Insurance Calculator gives all parties a clear view of the financial effects of an inside IR35 contract and supports informed decision-making and budget management.
How Have the IR35 Rules Changed?
The key change to the IR35 rules was the 2021 private-sector reform, which shifted the responsibility for determining IR35 status and tax liability from the contractor to the end client. Before April 2021, contractors working through their own limited companies were responsible for assessing their IR35 status and faced tax liabilities when they erred. The 2021 reform extended regulations already applied to the public sector since 2017 to medium and large private-sector organizations. These organizations must now assess IR35 status and issue a Status Determination Statement, while the fee-payer deducts PAYE and National Insurance for contracts inside IR35.
Hirers and contractors should use current-year rules in the IR35 calculator for accurate modeling of tax and take-home pay. Current-year rules matter because income tax bands, National Insurance rates, and dividend tax rates change every year. For the 2026/27 tax year, the IR35 calculator must reflect the latest rates, including adjustments to dividend tax bands and employer National Insurance thresholds, to give a true picture of the cost difference between inside and outside IR35 engagements.
Keeping Your IR35 Calculation Accurate for 2026/27
An accurate IR35 result depends on the correct status, current income tax and NIC rates, and the correct tax year. The correct status, rates, and tax year keep the calculation aligned with the true financial impact of IR35. Contractors and hirers should re-run the IR35 calculator for 2026/27 figures whenever a contract or status changes. Changes in contract terms or status affect the calculation's outcome. The updated IR35 calculation helps both parties understand the financial effects of the contract under the current tax year's rules.