IR35 decides whether a UK contractor is taxed like a business or like an employee. Outside IR35, you can run the contract through your own limited company and pay yourself a small salary plus dividends. Inside IR35, the fee is taxed as employment income, usually through an umbrella company that also deducts employer costs. The same day rate can leave very different amounts. This calculator compares the two for 2026/27.
Figures checked by Muhammad Ahmad against GOV.UK: Understanding off-payroll working (IR35), GOV.UK: Rates and thresholds for employers 2026 to 2027 and GOV.UK: Tax on dividends. Prices and rules change, so confirm with the official source before relying on them. How we check the math
How it works
Outside IR35: contract income minus company running costs is the company's profit. The calculator pays your chosen director's salary, then corporation tax, then the rest as dividends taxed at the 2026/27 rates, using the same engine as the Salary vs Dividend Calculator.
Inside IR35 via an umbrella: the umbrella's income from your contract must cover its margin, employer NI at 15% above £5,000 and the 0.5% apprenticeship levy. What's left is your gross pay, taxed through PAYE with income tax and employee NI.
The inside day rate to match outside is the rate at which umbrella take-home equals your outside take-home, found by trying rates until the two match.
Pension contributions (which can reduce tax on either route), holiday pay arrangements and Scottish tax bands aren't modelled. If the client or agency pays you directly under PAYE rather than through an umbrella, employer costs may fall on them and inside take-home will be higher.
A worked example
At £500 a day for 220 days, the contract earns £110,000. Outside IR35, with £2,500 of costs and a £12,570 salary, take-home is about £68,750. Inside IR35 through an umbrella charging £1,200 a year, gross pay is about £94,850 and take-home about £65,570. Outside comes out about £3,180 a year ahead, so inside is worth about 95% of outside; an inside rate of about £530 a day would match. The gap is smaller than many contractors expect, partly because dividend tax rose in April 2026.
Questions people ask
How much less do you take home inside IR35?
It depends on the rate, costs and umbrella margin. At £500 a day for 220 days the gap in 2026/27 is about 5%. It narrowed when dividend tax rose by 2 points in April 2026, which cut the outside-IR35 advantage. Run your own rate to see yours.
Who decides whether a contract is inside or outside IR35?
For medium and large private-sector clients and all public-sector clients, the client decides and must give you a Status Determination Statement. For small private-sector clients, your own company decides.
What is an umbrella company?
A company that employs you for the assignment, invoices the agency or client, and pays you through PAYE after deducting employer NI, the apprenticeship levy and its own margin.
Can I claim expenses inside IR35?
Very few. Travel to a temporary workplace may qualify in limited cases, but most business costs aren't deductible against employment income.
Should I ask for a higher rate for an inside IR35 role?
Many contractors do, because the rate has to cover employer costs through the umbrella. The 'inside day rate to match outside' result shows how much higher it would need to be.
Guides
- Inside vs Outside IR35 in 2026/27: The Gap Is Smaller Than You ThinkContractors often assume an inside-IR35 role costs 20% or more of their take-home. After the April 2026 dividend tax rise, the real gap at typical day rates is closer to 5% to 7%.
- Salary or Dividends in 2026/27: The Best Mix for a UK Limited Company DirectorDividend tax rose by 2 points in April 2026, and employer NI is 15% above £5,000. Here's how the numbers now work out for a one-person company, and which salary comes out ahead.