IR35 Calculator UK
Model: inside IR35, the fee-payer first deducts employer National Insurance (15% above the £5,000 secondary threshold) from the contract value; the rest is deemed employment income taxed through PAYE (income tax + employee NI, no pension). Outside IR35, the company pays a salary up to the £12,570 personal allowance, corporation tax on the remaining profit, and the rest as dividends taxed at 8.75%/33.75%/39.35% with a £500 allowance. Expenses, accountancy costs, employer pension contributions and the apprenticeship levy are ignored. Illustration only — get advice before acting on an IR35 decision.
What is IR35?
IR35 is the common name for the off-payroll working rules. They exist so that a contractor who would have been an employee if engaged directly pays broadly the same income tax and National Insurance as an employee. IR35 is not a tax — it is a status test, applied contract by contract. The three key factors HMRC looks at are control (does the client tell you how, when and where to work?), substitution (can you send someone else to do the work?) and mutuality of obligation (is the client obliged to offer work and are you obliged to accept it?).
For most medium and large clients, the client decides your status and must give you a Status Determination Statement explaining the decision. For small clients, the decision is yours — your own company decides. The public sector has used these rules since April 2017 and medium and large private-sector clients since April 2021. HMRC provides a free Check Employment Status for Tax (CEST) tool, but its answer is only as good as the facts you put in.
How IR35 status is actually decided
Status is decided on how you actually work, not on what the contract says. HMRC and the courts weigh three main tests, from the 1968 case Ready Mixed Concrete v Minister of Pensions. Control: does the client tell you how, when and where to do the work, or do you decide for yourself? A contractor who must work 9 to 5 in the client’s office, using the client’s equipment and following the client’s processes, looks like an employee. Substitution: can you send someone else to do the work, and have you ever done so? A genuine right of substitution, used in practice, points strongly outside IR35; a clause that exists on paper but could never be used does not. Mutuality of obligation: is the client obliged to offer you work and are you obliged to accept it? A rolling arrangement with no gaps and no right to refuse work looks like employment.
Other factors matter too: whether you are in business on your own account (multiple clients, your own insurance, your own equipment, financial risk if the work goes wrong), how you are paid (a fixed day rate for time spent, or a price for a finished piece of work), and whether you are part and parcel of the client’s organisation (a company email address, a place on the org chart, invitations to staff events). No single factor decides it; HMRC looks at the whole picture, and borderline cases are common. That is why the same contractor can be inside on one engagement and outside on another.
The small-company exemption is worth knowing. If your client is a small company, the off-payroll rules do not apply to it and the decision stays with your own company. A company is medium or large if it meets at least two of these for two consecutive years: turnover above £15 million, a balance sheet total above £7.5 million, or an average of more than 50 employees. Those thresholds rose for accounting periods beginning on or after 6 April 2025, from £10.2 million and £5.1 million. Company size is assessed on prior-year accounts, so the change takes time to flow through to individual clients.
Inside IR35: what happens to your money
Inside IR35 means the engagement is treated as employment for tax purposes. The fee-payer — usually the agency — deducts the tax before paying your company. First, employer National Insurance of 15% is charged on earnings above the £5,000 secondary threshold and comes out of the contract value. What is left is deemed employment income, and income tax and employee National Insurance (8% between £12,570 and £50,270, then 2% above) are deducted through PAYE. Being inside does not make you the client’s employee in the legal sense: you get no employment rights from them, no holiday pay and no pension auto-enrolment. Your company does not stop existing — the income simply gets employment tax treatment.
Outside IR35: what happens to your money
Outside IR35 means HMRC treats the engagement as a genuine business-to-business arrangement. Your limited company receives the fee gross. The usual structure is a small salary — typically up to the £12,570 personal allowance — and the rest taken as dividends from company profits. The company pays corporation tax on its profits: 19% up to £50,000, 25% above £250,000, with marginal relief in between. You then pay dividend tax personally: the first £500 of dividends is tax-free, then 8.75% in the basic-rate band, 33.75% in the higher-rate band and 39.35% in the additional-rate band. Dividends are not subject to National Insurance, which is where most of the outside-IR35 advantage comes from. The trade-off is real: you carry the company’s admin, accountancy costs, and the risk that HMRC disagrees with the status.
Worked example: £500 a day, 220 days (£110,000)
| Inside IR35 | Outside IR35 | |
|---|---|---|
| Contract value | £110,000.00 | £110,000.00 |
| Employer NI (15% above £5,000) | −£15,750.00 | — |
| Deemed employment income / salary | £94,250.00 | £12,570.00 |
| Income tax | −£25,132.00 | — |
| Employee National Insurance | −£3,895.60 | — |
| Corporation tax | — | −£22,068.95 |
| Dividends received | — | £75,361.05 |
| Dividend tax | — | −£15,965.60 |
| Take-home pay | £65,222.40 | £71,965.45 |
The gap is £6,743.05 a year on this contract — about 6% of the contract value. The gap grows and shrinks with the day rate: at £350 a day the difference is smaller in pounds, and at £800 a day it is much larger, because more of the outside-IR35 income falls into the higher dividend-tax bands while the inside figure keeps paying 40% tax and 2% NI at the top. Try your own rate above.
What this calculator does not do
- It does not decide your IR35 status. Status depends on how you actually work, not on the rate or the contract wording. Use HMRC’s CEST tool and, for anything that matters, take professional advice.
- It ignores expenses. Genuine business expenses reduce the company’s taxable profit outside IR35. Inside IR35 the 5% expenses allowance was abolished in April 2021, so there is nothing to deduct.
- It ignores pension. Employer pension contributions through your company are a legitimate way to reduce tax outside IR35 and are not modelled here.
- It ignores umbrella companies. If you work through an umbrella company, the umbrella is your employer and the off-payroll rules do not apply in the same way — you are taxed as an employee, and the umbrella takes a margin.
Related: Dividend Tax Calculator · Corporation Tax Calculator · Take Home Pay Calculator
Sources: GOV.UK “Off-payroll working (IR35)” and “Understanding off-payroll working (IR35)”; HMRC “Tax on dividends” (£500 allowance; 8.75%/33.75%/39.35%); GOV.UK “Corporation Tax rates”; HMRC rates and thresholds for employers 2026 to 2027 (employer NI 15%, secondary threshold £5,000). Checked 13 November 2026.