Compare your take home pay inside vs outside IR35. See exactly how much the IR35 status of your contract affects your earnings.
IR35 is tax legislation designed to identify contractors who work like employees but operate through their own limited company. If your contract is inside IR35, you're taxed similarly to an employee — paying full income tax and National Insurance on your earnings.
If your contract is outside IR35, you can pay yourself a small salary and take the rest as dividends through your limited company, resulting in significantly lower tax.
When a contract falls inside IR35, the end client (or agency) deducts income tax and National Insurance at source, just like they would for an employee. Your limited company receives the net amount after employer's NI (13.8%) has been deducted from your fee. You're treated as a "deemed employee" for tax purposes.
The 5% allowance that contractors could previously claim to cover business costs was removed in April 2021 for contracts where the client determines IR35 status.
Outside IR35, you invoice the client through your limited company. The most tax-efficient strategy is typically to pay yourself a salary at the NI threshold (£12,570) and take the remaining profit as dividends. This avoids most National Insurance and takes advantage of lower dividend tax rates.
Your company pays corporation tax at 25% on profits before dividends are distributed. Dividends are then taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) after your £500 tax-free dividend allowance.
The difference is substantial. A contractor on £500/day will typically take home £15,000-£25,000 more per year outside IR35 compared to inside. The exact difference depends on your daily rate, expenses, and other income.
Use the calculator above to see the exact difference for your situation. You can also use our dividend tax calculator to explore different salary/dividend splits.
Since April 2021, for medium and large businesses, the end client determines whether a contract falls inside or outside IR35. For small companies (fewer than 50 employees, under £10.2m turnover), the contractor still makes the determination themselves.