IR35 Status · Key Comparisons at Common Day Rates (2026/27)
Approximate annual take-home for a contractor working 220 days. Outside IR35 assumes director salary of £12,570, no business expenses. Inside IR35 includes deemed employment rules with 5% admin allowance.
| Day Rate |
Annual Revenue |
Outside IR35 |
Inside IR35 |
IR35 Cost |
IR35 Cost /month |
| £300/day | £66,000 | £47,600 | £40,300 | £7,300/year | £608/month |
| £400/day | £88,000 | £60,500 | £51,200 | £9,300/year | £775/month |
| £500/day | £110,000 | £73,100 | £61,800 | £11,300/year | £942/month |
| £600/day | £132,000 | £84,400 | £72,200 | £12,200/year | £1,017/month |
| £750/day | £165,000 | £101,300 | £87,400 | £13,900/year | £1,158/month |
Figures are illustrative. Actual take-home depends on expenses, pension contributions, dividend timing and personal circumstances. Use the calculator above for your exact numbers.
IR35 Calculator · Frequently Asked Questions
What is IR35?
IR35 is anti-avoidance legislation introduced in 2000 and significantly reformed in 2017 and 2021. It is designed to catch contractors who work in a way that is effectively the same as employment but operate through a limited company to pay less tax. HMRC assess whether the relationship between the contractor and the end client resembles employment · if it does, the contract is deemed "inside IR35" and the contractor must pay income tax and National Insurance as if they were an employee. The key tests are substitution, mutuality of obligation, and control · collectively the "status tests".
What is the 5% expenses rule inside IR35?
Under the off-payroll working rules (IR35 reform), the 5% expenses allowance that used to let contractors deduct up to 5% of gross income for admin costs was removed from 6 April 2021 for contractors working with public sector bodies and medium-to-large private sector clients. However, for small private sector clients (those meeting the Companies Act small company definition: two of · turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees) the old rules still apply and the 5% allowance is retained. This calculator applies the 5% allowance as a modest deduction for admin costs, consistent with HMRC guidance for applicable cases.
How does the deemed employment payment work inside IR35?
When a contract is inside IR35, the contractor's limited company receives the fee from the client but must calculate a "deemed employment payment" and process it through PAYE. The deemed salary is broadly: contract income minus the 5% admin allowance (where applicable), minus the employer NI cost. The remainder is treated as employment income and subject to income tax at the contractor's marginal rate and employee National Insurance at 8% up to £50,270 and 2% above. Employer NI at 13.8% above the £9,100 secondary threshold (2026/27) is also due, effectively reducing the net amount received. There is no salary/dividend split and no corporation tax efficiency.
How much less do I take home inside IR35?
For a typical contractor at £400–£500/day the difference is typically £8,000–£12,000 per year (£650–£1,000/month) less take-home inside IR35 compared to an equivalent outside IR35 contract through a limited company. The gap is larger at higher day rates because the dividend tax advantage grows, and smaller at lower rates where the basic rate band means tax rates converge. The calculator above will give you the exact figure for your contract.
Can I still pay into a pension if I am inside IR35?
Yes. Pension contributions can reduce your taxable income inside IR35, just as they do for employed workers. Your limited company can make employer pension contributions on your behalf, which are a deductible expense for the company and not subject to income tax or NI for you personally · up to the Annual Allowance of £60,000 per year (2026/27). This is one of the key planning opportunities still available inside IR35. The calculator above lets you enter a pension contribution amount that reduces the taxable deemed salary.
Who decides if my contract is inside or outside IR35?
Since April 2021, for medium and large private sector clients (and all public sector bodies), the responsibility for determining IR35 status sits with the end client, not the contractor. The client issues a Status Determination Statement (SDS). For small private sector clients, the contractor's own company determines status. HMRC's CEST (Check Employment Status for Tax) tool can be used as a guide, but is not legally binding. Many contractors seek independent IR35 review from a specialist employment law or tax advisor.
What is the optimal salary to pay myself outside IR35 in 2026/27?
The most common approach for a sole director outside IR35 is to pay a salary equal to the personal allowance of £12,570. This means no income tax is due on the salary, and NI is minimal. The secondary NI threshold (employer NI) for 2026/27 is £9,100, so employer NI at 13.8% applies on the salary between £9,100 and £12,570 · approximately £480. This is still typically more efficient than paying a lower salary, as the salary is a deductible expense from company profit before corporation tax, and higher than the NI threshold builds a qualifying year for state pension entitlement.
For informational purposes only · Not financial advice · Tax rates shown are for 2026/27 · Actual IR35 status depends on the specific facts of each engagement · Always consult a qualified contractor accountant or IR35 specialist