Outside vs Inside IR35 Calculator

The inside-IR35 take-home is what the calculator above models. The outside-IR35 take-home is a worked example for comparison — actual outside figures depend on how the PSC mixes salary and dividends, so the comparison is illustrative, not a forecast. Both sides use 2026/27 HMRC rates.

IR35 is the short name for the off-payroll working rules, designed to ensure contractors who would be employees if engaged directly pay broadly the same income tax and National Insurance as employees. The rules apply when a contractor provides their services through an intermediary — usually their own personal service company (PSC) — but the working arrangements would otherwise amount to employment.

Where the rules apply, the engagement is described as inside IR35. The fee payer deducts PAYE and NICs from the contractor's fee as if they were a salary, rather than the contractor paying themselves via dividends from their PSC. Where the rules do not apply, the engagement is outside IR35 and the contractor's PSC pays corporation tax on the profits in the normal way, then distributes the remainder to the contractor as salary and dividends.

The 2021 reform shifted the status decision from the contractor's PSC to the end client for medium and large private-sector clients and all public-sector bodies. The contractor can still challenge an inside determination, but the determination itself comes from the client.

The two routes have very different tax treatments. The table below shows how the same £75,000 contract fee flows under each route, ignoring the 5% expenses allowance and any salary-sacrifice pension.

The exact outside-IR35 number depends on how the PSC mixes salary and dividends. The example above uses the £12,570 personal allowance as a small salary, with the rest paid as dividends. A higher salary reduces corporation tax but attracts income tax and employee NI; a higher dividend reduces both but attracts the 8.75%/33.75%/39.35% dividend rate. Most PSCs run a salary around the personal allowance for the optimum mix.

Inside IR35, the contract fee is treated as deemed employment income. The fee payer (often the agency or end client) becomes a deemed employer and must operate PAYE on the fee.

First, the calculator deducts employer NI at 15% from the fee above the £5,000 secondary threshold — the same rate as for a direct employee. The remainder is the deemed gross pay. Income tax and employee NI are then applied to that deemed gross pay in the same way as for a regular salary: 20% on the first £37,700 of taxable income above the £12,570 Personal Allowance, 40% up to £125,140, and 45% above. The Personal Allowance tapers to nil between £100,000 and £125,140 of adjusted net income.

Outside IR35, the contractor's PSC receives the fee and pays corporation tax on its profits. The standard rate of corporation tax is 25% from 2026/27 (unchanged from 2025/26), with marginal relief available on the first £250,000 of profits for non-ring-fenced profits. After corporation tax, the PSC pays the contractor by a mix of salary and dividends.

A typical outside-IR35 structure pays a small salary at or around the personal allowance (so no income tax or employee NI is due on it), then the post-tax profit as a dividend. Dividend tax in 2026/27 is 8.75% for the basic-rate band, 33.75% for the higher-rate band, and 39.35% for the additional-rate band, applied on top of the personal dividend allowance of £500. The result is usually a higher net than inside IR35, but the contractor also pays accountancy, insurance, and admin costs to run the PSC — typically £2,000–£4,000 a year for a small company.

The table and chart below show the estimated inside-IR35 take-home for a contractor at six representative annual fees for 2026/27, using the calculator's method. The figures are estimates before pension contributions or student loan repayments.

These figures assume all the contractor's income is from one inside-IR35 engagement and ignore the 5% expenses allowance. Use the take-home pay calculator to compare with the net of a permanent salary at the same level.

How much would a £75,000 contract fee net you under each route? The worked example below uses a typical 2026/27 structure for each side.

• Inside IR35, £75,000 fee. Employer NI 15% above £5,000 = £10,500. Deemed gross = £64,500. Income tax + employee NI on the deemed gross ≈ £14,326. Take-home ≈ £50,174.
• Outside IR35, £75,000 fee, PSC route. PSC pays 25% corporation tax on £75,000 = £18,750, leaving £56,250. A small salary of £12,570 (uses the personal allowance) costs the PSC £12,570 in cash and the contractor pays no income tax or employee NI on it. Remaining profit of £43,680 is paid as dividend; dividend tax at 8.75% on £43,680 − £500 allowance = ≈ £3,779, but a higher-rate taxpayer pays 33.75% on the slice above the higher-rate threshold. Estimated take-home ≈ £48,000 to £54,000 depending on dividend mix and personal allowance position.

The outside-IR35 route typically nets more on paper, but the gap narrows once you account for accountancy fees, the cost of running the company, and the risk of an HMRC status challenge that would unwind it all.

Since the 2021 reform of the off-payroll rules, the end client decides the status of every engagement, except where the client is a small company (GOV.UK off-payroll working rules).

• Public-sector clients and medium or large private-sector clients: the client determines status and must issue a Status Determination Statement (SDS). The fee payer (often an agency) operates PAYE based on that status.
• Small private-sector clients: the contractor's own PSC makes the determination and carries the tax risk if HMRC later disagrees.

A medium or large client must pass on its determination and reasonable care through the labour supply chain, so an agency can rely on the client's SDS in most cases. Small clients are usually defined as meeting two of: turnover under £10.2 million, balance sheet total under £5.1 million, fewer than 50 employees.

Where the contractor's own PSC determines status (a small-client engagement), HMRC allows a 5% allowance on the fee to cover the running costs of operating through a company — accountancy fees, insurance, software and so on. This is deducted from the deemed payment before PAYE is calculated, so it slightly reduces the taxable amount.

Where the client makes the determination — the majority of inside-IR35 engagements — no 5% allowance applies. The contractor's PSC may still claim legitimate expenses against its corporation tax bill, but those expenses are not deducted for the purpose of calculating the deemed payment to the contractor. This calculator excludes the 5% allowance, so use it as the upper bound of take-home on small-client engagements.

If a client issues an SDS that says an engagement is inside IR35 and you believe it should be outside, you can submit a written disagreement through the client's status disagreement process. The client must respond with reasons within 45 days of receiving it.

The disagreement process is a legal right, not a courtesy. Keep evidence of working practices — substitution rights, the level of control the client exerts, and whether there is a mutuality of obligation between the parties — because these are the three tests HMRC uses to decide employment status. If the client fails to respond within 45 days, the contractor is treated as outside IR35 for that engagement until a new SDS is issued.

If the disagreement is rejected, the contractor's options are to accept the determination or to refuse the contract. There is no right of appeal to HMRC on the determination itself — the right of appeal is against the PAYE operated by the fee payer, not the underlying status.

Three errors catch contractors out regularly:

• Treating outside-IR35 status as automatic. The client (or your PSC, for small clients) has to determine it actively and issue or accept an SDS. No status is not the same as outside.
• Forgetting the personal service company route. The deemed payment rules apply even when the contractor has no PSC at all — the fee payer still has to operate PAYE if the conditions are met.
• Ignoring the 5% allowance on small-client engagements. The calculator above excludes it; small-client engagements can take slightly more home.
• Quoting the same day rate inside and outside IR35. Outside-IR35 engagements cost the contractor more in admin and tax risk, so the day rate should be higher — typically 15–25% above an equivalent inside-IR35 rate. Pricing them identically is a margin trap.

Where the determination is borderline, take professional advice before signing a contract. The cost of getting it wrong falls on the party HMRC decides carries the tax risk.

Enter the annual contract fee and the calculator shows the employer NI, the income tax plus employee NI and the estimated inside-IR35 take-home for the year. Use the comparison section to see what the same fee would look like if it were paid outside IR35 through a PSC — the difference is the corporation tax bill and the dividend tax bill replacing the PAYE deductions.

The figures use 2026/27 HMRC rates and the rUK income tax bands. For a final outside-IR35 figure, model the same fee through your PSC accounts with your accountant — corporation tax, dividend mix, and the personal allowance position all change the result.