IR35 (also called the off-payroll working rules) is UK legislation that determines whether a contractor working through a limited company should be taxed as an employee. If HMRC considers you to be a "disguised employee" — doing the same work as a permanent employee but through a company — you fall inside IR35 and are taxed like an employee on the income from that engagement.

What is the difference between inside and outside IR35?

Outside IR35: you operate as a genuine business — pay yourself a small salary and take dividends from company profits. You pay corporation tax on profits and dividend tax on distributions, and can claim business expenses. Inside IR35: the engager (client) applies PAYE tax and NI to your invoice income — you receive a net "deemed payment" with no tax efficiency from the limited company structure.

How much less do I take home inside IR35?

This varies by day rate, but typically contractors take home 20–30% less inside IR35 compared to outside, for the same day rate. The reason is that inside IR35 you pay full employer NI (from your invoice) plus employee NI and income tax, with no dividend tax optimisation. Our calculator shows the exact difference for your rate.

Who determines IR35 status?

For public sector and medium/large private sector clients (since April 2021), the engager (client) determines IR35 status and issues a Status Determination Statement (SDS). For small private sector companies (2 of 3: turnover < £10.2m, balance sheet < £5.1m, fewer than 50 employees), the contractor's own limited company remains responsible for determining status.

What are the key IR35 status factors?

The main factors HMRC considers: (1) Substitution — can you send a substitute to do the work? (2) Control — does the client control where, when, and how you work? (3) Mutuality of Obligation — is there an expectation of ongoing work? Outside IR35 typically means: you can substitute, you control your own work, and there is no obligation for the client to offer you more work.

Can I use HMRC's CEST tool?

HMRC's Check Employment Status for Tax (CEST) tool can help determine IR35 status, and HMRC will stand behind the result if the information you give is accurate. However, CEST has been criticised for not covering all scenarios and not giving a result in some cases. Always consider taking professional IR35 advice for complex engagements.

IR35 Calculator 2026/27 | Outside vs Inside IR35 Take-Home

IR35 Calculator 2026/27 — Inside vs Outside Take-Home

Compare contractor take-home pay operating inside vs outside IR35. Enter your day rate to see the tax difference between the limited company salary + dividends model and PAYE deemed salary. Updated for 2026/27.

Contractor Details

Enter your day rate and working days to compare IR35 scenarios

Day Rate*

Billable Days per Year*

Annual Business Expenses

Annual revenue

£110,000

£500/day × 220 days

Calculator assumptions

Outside IR35: salary set at personal allowance (£12,570)
Remaining profit taken as dividends
Corporation tax at 19% (small companies rate)
Dividend allowance: £500
Inside IR35: full revenue flows through PAYE

Take-Home Comparison

Outside IR35

£72,228

per year

Inside IR35

£66,414

per year

Outside IR35 pays

£5,814 more

(5.3% of revenue)

Outside IR35 — Breakdown

Annual revenue£110,000

− Business expenses− £3,000

− Salary (at PA)− £12,570

− Corporation tax (19%)− £17,726

− Dividend tax− £15,911

Take-home£72,228

Effective tax rate34.3%

Inside IR35 — Breakdown

Annual revenue£110,000

− Employer NI (15%)− £13,696

Deemed gross salary£96,304

− Employee NI− £3,937

− Income tax− £25,954

Take-home£66,414

Effective tax rate39.6%

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IR35 and Off-Payroll Working: A Contractor's Guide

IR35 is one of the most significant tax issues facing UK contractors. Understanding how it affects your take-home pay helps you make informed decisions about contract engagements and whether a day rate adequately compensates for the inside-IR35 tax hit.

The Day Rate Equivalent Inside IR35

If you are forced inside IR35, you effectively need a higher day rate to maintain the same take-home pay. The rule of thumb is that an inside-IR35 day rate needs to be approximately 20–30% higher than an outside-IR35 rate to achieve the same net income. Use the calculator above to find the exact figure for your circumstances.

Key Factors HMRC Uses to Determine IR35 Status

Substitution: Can you send a substitute to do the work? A genuine right of substitution (not merely theoretical) points outside IR35.
Control: Does the client dictate where, when, and how you work? High client control points inside IR35.
Mutuality of Obligation: Is there an obligation to offer and accept work? If the client must give you work and you must take it, this points inside IR35.
Financial Risk: Do you invest in your business, risk not being paid, or bear cost overruns? Genuine financial risk points outside.
Integration: Are you treated like an employee — on the org chart, invited to staff events, using company IT? This points inside.

Using HMRC's CEST Tool

HMRC's Check Employment Status for Tax (CEST) tool gives an indication of status. If you answer accurately and CEST returns an "outside IR35" result, HMRC will generally stand by it. However, CEST does not cover all scenarios and does not always reach a conclusion — professional advice is recommended for complex situations.

Employer Perspective: IR35 and Off-Payroll Compliance

If you engage contractors, the off-payroll working rules may require you to:

Issue a Status Determination Statement (SDS) for each contractor engagement
Operate PAYE on payments if the determination is inside IR35
Maintain records of your status determinations

Use our Employer NI Calculator to understand the additional NI cost of treating a contractor as inside IR35, and our Employee Cost Calculator for the full cost of employment.

IR35 Calculator 2026/27 — Inside vs Outside Take-Home

IR35 and Off-Payroll Working: A Contractor's Guide

The Day Rate Equivalent Inside IR35

Key Factors HMRC Uses to Determine IR35 Status

Using HMRC's CEST Tool

Employer Perspective: IR35 and Off-Payroll Compliance

Frequently Asked Questions

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IR35 Calculator 2026/27 — Inside vs Outside Take-Home

IR35 and Off-Payroll Working: A Contractor's Guide

The Day Rate Equivalent Inside IR35

Key Factors HMRC Uses to Determine IR35 Status

Using HMRC's CEST Tool

Employer Perspective: IR35 and Off-Payroll Compliance

Frequently Asked Questions

What is IR35?

What is the difference between inside and outside IR35?

How much less do I take home inside IR35?

Who determines IR35 status?

What are the key IR35 status factors?

Can I use HMRC's CEST tool?

Related Calculators

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