IR35 Calculator — Contractor vs Employee Take-Home Pay

• Since April 2021, the client (not the contractor) determines IR35 status for medium and large private sector businesses. Public sector clients have been responsible since April 2017. Small companies are exempt — the contractor still makes their own determination.
• HMRC's CEST tool (Check Employment Status for Tax) can help determine your IR35 status, but it is not legally binding and has been criticised for its accuracy. Consider getting a professional IR35 status review for high-value contracts.
• Outside IR35 is more tax-efficient but comes with trade-offs. You get no employer pension contributions, no paid holiday, no statutory sick pay, no redundancy protection, and no employment rights. You also need professional indemnity insurance, an accountant, and must manage your own IR35 compliance.
• Inside IR35 does not mean you become an employee. You still lack employment rights. The tax treatment is similar to employment, but you may work through an umbrella company that handles payroll. Always check the umbrella company is compliant and transparent about deductions.
• The numbers above are simplified estimates. Real-world take-home depends on pension contributions, expenses, dividend timing, retained profits, and your personal tax situation. Use these as a starting point for planning, not as a definitive answer.

Employee (PAYE)

Straightforward employment. Your employer deducts income tax and National Insurance (8% on earnings between £12,570 and £50,270, 2% above) at source. You also benefit from employer pension contributions, paid holiday (typically 25+ days), sick pay, and employment rights.

Outside IR35 (Limited Company)

You invoice your client through your own limited company. The company pays corporation tax on profits (19% for profits up to £50,000, rising to 25% for profits over £250,000 with marginal relief in between). You then pay yourself a small salary at the personal allowance level (£12,570) to minimise NI, and extract the rest as dividends taxed at lower rates (8.75% basic, 33.75% higher, 39.35% additional). The £500 dividend allowance is tax-free.

Inside IR35 (Umbrella Company)

Your assignment rate goes to an umbrella company, which deducts its margin (typically £20-30/week), employer National Insurance (15% above £5,000), and then pays you a salary subject to normal PAYE income tax and employee NI. Your take-home is lower than a direct employee on the same gross salary because the employer NI comes out of your assignment rate, not the client's budget.