IR35 Calculator

IR35 is the tax law that targets contractors who work like employees but pay themselves through a limited company to reduce their tax bill. If your engagement falls "inside" IR35, you're taxed as if you were an employee — full PAYE, full NI. Since April 2021, it's the client's job to make that call for medium and large companies, not yours.

The short answer is: thousands of pounds a year. Outside IR35, you take a small salary (usually around £12,570) and draw the rest as dividends at much lower tax rates. Inside IR35, everything gets treated as a deemed salary with employer NI, employee NI, and income tax all taken off the top. You end up with roughly the same take-home as a permanent employee on the same gross rate.

On a £500/day rate working 46 weeks, you'd typically keep £15,000–£20,000 more per year outside IR35. That's because you're paying corporation tax at 25% on profits, then dividend tax at 8.75% or 33.75% — both significantly lower than the combined income tax and NI you'd face inside. The exact gap depends on your rate and how you structure your salary/dividend split.

It depends on the size of your client. Medium and large private-sector clients have to assess your status and issue a Status Determination Statement (SDS). You can challenge it if you disagree — they must respond within 45 days, and if they don't, the tax liability shifts back to them. For small private-sector clients, you still determine your own status. HMRC's CEST tool is the official (if somewhat blunt) way to check.

An umbrella employs you on paper and handles all the PAYE deductions. They charge about £20–£30 a week. If you're inside IR35 and your client won't put you on their own payroll, an umbrella is the simplest route. You don't need to run a limited company, file annual accounts, or deal with corporation tax returns. The trade-off is you lose the flexibility of running your own company.

Three big ones. First: Control — does the client tell you how, when, and where to work? Second: Substitution — could you send someone else to do the job in your place? Third: Mutuality of Obligation — is the client required to offer you work, and are you required to accept it? If the answer to all three points towards employment, you're probably inside. HMRC also looks at whether you bear financial risk, provide your own equipment, and receive employee-style benefits.

Yes, and you should if you genuinely believe it's wrong. Put your challenge in writing with evidence — your actual working practices, your contract terms, and anything that shows you're not operating like an employee. The client has 45 days to respond. If they ghost you, the tax liability transfers to them. Keep a paper trail of everything.

This is the bit that really stings. Employer NI at 13.8% comes off your gross contract income before your deemed salary is even calculated. So on a £100,000 annual contract, roughly £12,000 vanishes to employer NI before you see a penny. It's the single biggest reason the inside IR35 take-home is so much lower.

Almost nothing. You get a flat 5% deduction from gross income to cover your company's running costs, and that's it. No travel, no subsistence, no equipment. Compare that to outside IR35 where your limited company can claim all legitimate business expenses against corporation tax. It's a massive difference.

Not necessarily. Your next contract might be outside IR35, and your Ltd still gives you limited liability protection. But if every engagement you take is consistently inside, ask yourself: is it worth paying for annual accounts, a corporation tax return, and an accountant? An umbrella might be simpler and cheaper at that point. Keep the Ltd if there's a realistic chance of outside IR35 work in the near future.