Inside vs Outside IR35 Calculator
Compare your take-home pay when working inside IR35 (via umbrella company) versus outside IR35 (via your own limited company) to understand the true financial impact of IR35 status.
How to use this calculator
Enter your contract day rate or hourly rate, along with your working pattern and any pension contributions. The calculator will show your annual and monthly take-home pay for both inside IR35 (umbrella company) and outside IR35 (limited company) — including employer NI, umbrella fees, corporation tax, and dividends — so you can see exactly how much IR35 status costs you.
What you'll need:
- • Your contract day rate or hourly rate
- • Working days per week and holiday weeks
- • Pension contribution percentage (optional)
What you'll find out:
- • Inside IR35 net pay after umbrella fees and tax
- • Outside IR35 net pay via salary and dividends
- • Exact cash difference between IR35 statuses
- • Effective tax rate for each scenario
Why IR35 status matters so much
For a £500/day contract, working inside IR35 instead of outside IR35 can cost you over £21,000 per year in take-home pay. Understanding this difference lets you make informed decisions about which contracts to accept, how to negotiate rates, and whether to challenge an IR35 determination.
Contract Details
Via umbrella company
Via limited company
Understanding Inside vs Outside IR35
Inside IR35
When your contract is deemed inside IR35, you're treated as an employee for tax purposes, typically working through an umbrella company.
- ✓ Simpler administration
- ✓ Statutory benefits (holiday pay, sick pay)
- ✓ No IR35 compliance risk
- ✗ Higher tax burden
- ✗ Umbrella fees (13.8% employer NI + margin)
- ✗ Limited expense claims
- ✗ Less control over tax planning
Outside IR35
When outside IR35, you operate as a genuine business through your limited company, with full control over how you extract profits.
- ✓ Tax-efficient dividends
- ✓ Business expense claims
- ✓ Pension contributions from company
- ✓ Significantly higher take-home
- ✗ More administrative burden
- ✗ No statutory benefits
- ✗ Must manage IR35 compliance
- ✗ Unpaid holidays
The Financial Impact
Why Inside IR35 Costs More
Inside IR35 contractors typically take home 15-25% less than outside IR35 for the same contract rate. This is primarily because:
- Employer's NI (13.8%): Deducted from your contract rate before you even see it
- Umbrella margin (3-5%): The umbrella company's fee for handling payroll
- Employee's NI (12%/2%): Deducted from your reduced salary
- Income tax (20-45%): Applied to your salary with limited tax planning options
- No dividend allowance: Can't benefit from lower dividend tax rates
Why Outside IR35 is More Tax-Efficient
Outside IR35, you can optimize your tax position through:
- Optimal salary: Take just £12,570 (personal allowance) to minimize NI
- Dividends: Extract remaining profits as dividends at 8.75% (basic) or 33.75% (higher) rate
- Corporation tax: Only 20% on company profits
- Business expenses: Deduct legitimate business costs (equipment, training, travel)
- Pension contributions: Make tax-efficient contributions directly from the company
- Timing control: Decide when to extract profits to manage tax brackets
Making the Decision
When You Might Accept Inside IR35
- The contract rate compensates for the lower take-home (typically 20-30% higher)
- You value the simplicity and don't want to manage a limited company
- The role is short-term and not worth setting up a company
- You want statutory benefits like holiday pay
- The client insists on inside IR35 and there are no other options
When to Push for Outside IR35
- You're a genuine contractor with multiple clients or seeking multiple contracts
- You have control over how, when, and where you work
- You provide your own equipment and bear financial risk
- There's no supervision and you're hired for your expertise
- The contract is for a specific project with defined deliverables
Example Comparison
For a £500/day contract (5 days/week, 46 weeks):
| Contract value | £115,000/year |
| Inside IR35 take-home | ~£67,000/year |
| Outside IR35 take-home | ~£88,900/year |
| Difference | £21,900/year (33% more!) |
Important Considerations
IR35 Determination
For medium and large clients (since April 2021), the end client is responsible for determining your IR35 status. If they deem you inside IR35, you cannot work outside IR35 for that contract, regardless of how you structure your business.
The Risk Factor
Working outside IR35 requires that your contract and working practices genuinely reflect a business-to-business relationship. If HMRC investigates and disagrees, you could face significant back taxes and penalties. Ensure you have:
- A properly reviewed contract that supports outside IR35 status
- Working practices that match the contract terms
- Consider IR35 insurance for peace of mind
- Keep detailed records of your working arrangements