IR35 Take-Home Pay Calculator

IR35 is tax legislation that determines whether a contractor working through a limited company should be taxed as an employee. When a contract is inside IR35, the end client or agency must deduct income tax and employee National Insurance from payments, and pay employer NI on top. This significantly reduces the contractor's take-home pay.

Outside IR35, the contractor pays themselves a low salary (typically the NI Primary Threshold of £12,570) and takes remaining profits as dividends. Dividends are taxed at lower rates: 8.75% basic, 33.75% higher and 39.35% additional, after a £500 dividend allowance. Corporation Tax at 25% (or 19% for small profits) is paid on company profits first.

This calculator compares take-home pay inside and outside IR35 for a given contract rate. It shows the gross difference, accounting for corporation tax, dividend tax, employer NI, employee NI and income tax under both scenarios. The results help contractors understand the financial impact of IR35 status.

How IR35 status is determined in practice. HMRC and tribunals use three key tests: (1) Control — does the client direct how, when and where you work, or do you genuinely choose; (2) Substitution — can you send a substitute, and is this a genuine right (not just on paper); (3) Mutuality of obligation — is there an ongoing obligation to offer and accept work. Other factors: financial risk (your own equipment, fix at your own cost), integration into the business, exclusivity. The HMRC CEST tool gives an indicative result but tribunals have overruled it many times — get a contract review from a specialist (Qdos, Bauer & Cottrell) for borderline cases.

Who decides IR35 status — and the small company exemption. Since April 2021 (private sector) and 2017 (public sector), medium and large clients determine IR35 status and issue a Status Determination Statement (SDS). The fee-payer (usually the agency or end client) becomes liable for unpaid tax if the status is wrong. Small clients (turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees — meeting 2 of 3) are exempt — in this case YOU as contractor determine status and bear the risk. The April 2024 'offset' rules let HMRC offset tax already paid by the contractor against any liability assessed against the employer.

Financial impact of being inside vs outside IR35. Outside IR35 on £450/day (£117k/year): take home ~£82k via Ltd company (salary + dividends + pension), effective tax 30%. Inside IR35 same day rate: take home ~£62k via umbrella/deemed employment, effective tax 47%. The £20k swing is why contractors raise day rates by ~25% when forced inside. Inside IR35 you lose: ability to take dividends, claim travel/subsistence (mostly), use Annual Investment Allowance, defer income to a future tax year, or accumulate retained earnings.

Strategies if forced inside IR35. (1) Negotiate a higher day rate to compensate (typical uplift 20-30%); (2) Work through an umbrella company (simpler than statutory deemed employment via your Ltd, similar take-home); (3) Maximise umbrella pension contributions (still deductible for income tax + NI); (4) Look for outside IR35 contracts — smaller clients (exempt), genuinely outside roles (statement of work projects, clear deliverables); (5) Consider becoming permanent — may have similar take-home to inside IR35 plus benefits, pension, holiday, sick pay. Always get a written SDS from the client documenting their assessment.