Inside vs Outside IR35 in 2026/27: The Gap Is Smaller Than You Think

For UK contractors, IR35 status used to decide a big share of take-home pay. Outside IR35 you could pay yourself a small salary and take the rest as dividends through your own company; inside, everything went through PAYE, usually via an umbrella company. The difference is still real in 2026/27, but two changes have narrowed it.

What changed

• Dividend tax rose by 2 points from 6 April 2026: to 10.75% in the basic-rate band and 35.75% in the higher-rate band. That cuts the outside-IR35 advantage directly.
• Employer NI has been 15% above £5,000 since April 2025. That raises costs on both sides: for your own company's salary outside, and inside, where it comes out of the day rate through the umbrella.

The comparison at £500 a day

Take 220 days at £500, £110,000 of income. Outside IR35: £2,500 of company costs, a £12,570 salary and the rest as dividends. Inside IR35: an umbrella charging £1,200 a year, which also deducts employer NI and the 0.5% apprenticeship levy before paying you.

Outside comes to about £68,750 and inside about £65,570: a gap of about £3,180, or roughly 5%. An inside rate of about £530 a day would match the outside take-home.

At other day rates

• £400 a day: outside £58,360, inside £54,520. Inside is about 93% of outside; £435 inside would match.
• £500 a day: outside £68,750, inside £65,570, about 95%; £530 inside would match.
• £650 a day: outside £82,190, inside £77,460, about 94%; £700 inside would match.

These assume no pension contributions, rest-of-UK tax bands and all profit paid out in the year. Pension contributions can reduce tax on either route, and they often change the picture more than IR35 status does.

What to do with this

Don't turn down an inside-IR35 role on the assumption that it costs a fifth of your income. Work out the inside rate that matches your outside take-home, and negotiate towards it. For many contractors that is only 5% to 10% above the outside rate, a much easier conversation with a client than 20% or 30%.

Tip: Ask the agency or client whether the rate is paid to an umbrella or direct under PAYE. If employer NI is paid on top of the rate rather than out of it, inside take-home is higher than shown here.