How much less do you earn inside IR35?

For a contractor earning £500/day (£110,000/year gross), inside IR35 produces a take-home of about £65,222 with a standard umbrella (or roughly £63,922 after a typical £25/week umbrella margin). Outside IR35 via a £12,570 salary and dividends yields about £70,057. The outside-IR35 advantage at this scale is now roughly £5,000–£6,000 a year, around 8% of take-home, a much narrower gap than in the past, because employer NI is 15% and dividend tax rates rose to 10.75%/35.75%/39.35% in April 2026.

How is deemed salary calculated under IR35?

HMRC's deemed salary formula is: (Gross contract income − 5% expenses allowance) − Employer NI. The 5% allowance was abolished for most contractors from April 2023, so now it is: Gross income − Employer NI (15% above the £5,000 secondary threshold). This deemed salary is then subject to income tax and employee NI exactly as if you were an employee.

What is the IR35 2026/27 employer NI rate?

For 2026/27, employer NI is 15% on earnings above the £5,000 secondary threshold. This applies to the full gross contract value when calculating deemed salary. For example, on £100,000 gross: employer NI = (£100,000 − £5,000) × 15% = £14,250, leaving deemed salary of £85,750.

Can I be outside IR35 as a limited company contractor?

Yes. IR35 only applies if the working relationship resembles employment. Key indicators of outside IR35 status include: right of substitution (you can send someone else to do the work), control over how the work is done, financial risk (you can profit or lose on the contract), and multiple clients. Ideally have each contract reviewed by an IR35 specialist.

Does outside IR35 use corporation tax in 2026/27?

Yes. Outside IR35, your limited company pays corporation tax on profits before you extract dividends. For 2026/27 the small profits rate is 19% on profits up to £50,000, the main rate is 25% on profits above £250,000, and marginal relief applies between £50,000–£250,000. The dividend allowance is £500; beyond that, dividends are taxed at 10.75% (basic), 35.75% (higher), or 39.35% (additional).

Updated 6 April 2026

IR35 Calculator · Inside vs Outside 2026/27

Compare your take-home pay inside IR35 (deemed salary) against outside IR35 (salary + dividends). Updated with HMRC 2026/27 rates.

✓ Free to use✓ Updated 2026/27✓ HMRC aligned✓ Instant results

IR35 Calculator

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2026/27 UK rates. Outside IR35 assumes salary at personal allowance + dividends from remaining profit. Always verify with a qualified accountant.

Inside vs Outside IR35 Explained

Quick Answer: Outside IR35 still pays more, but the gap has narrowed sharply. On a £110,000 contract, outside take-home is about £70,057 versus about £65,222 inside, an advantage of roughly £5,000–£6,000 a year (around 8%), driven by employer NI (15% deducted before your salary is calculated inside IR35) partially offset by the higher 2026 dividend tax rates.

How Inside IR35 Works

Inside IR35, HMRC deems you a disguised employee. Your fee income enters a deemed salary calculation: employer NI (15% above £5,000) is deducted first, then income tax and employee NI are applied to the remaining deemed pay. You receive no salary/dividend split advantage, everything is taxed as earnings.

Formula

Inside IR35 net = Gross − Employer NI (15% above £5k) − Income Tax − Employee NI

e.g. £110,000 gross → £15,750 employer NI → £94,250 deemed pay → ~£65,222 net

How Outside IR35 Works

Outside IR35, your limited company pays you a salary (typically £12,570, the personal allowance) and extracts remaining profits as dividends. On a £110,000 contract the profit of about £96,295 (after the salary and £1,135.50 employer NI on it) sits in the corporation tax marginal relief band, giving corporation tax of about £21,768. You then pay dividend tax at 10.75% (basic rate) and 35.75% (higher rate) on dividends above the £500 allowance, about £17,039 on this example, leaving around £70,057 take-home. That is more than inside IR35, but only by roughly £5,000–£6,000 a year at this scale.

Worked Example, £500/day, 220 days

Gross contract value£110,000

INSIDE: Employer NI (15% above £5,000)−£15,750.00

INSIDE: Deemed pay£94,250.00

INSIDE: Income tax + employee NI−£29,027.60

INSIDE: Net take-home£65,222.40

OUTSIDE: Salary + dividends after taxes£70,057.00

Annual difference (outside − inside)£4,834.60

Outside IR35: £12,570 salary, £1,135.50 employer NI on it, corporation tax £21,768.04 (marginal relief), dividends £74,526.46, dividend tax £17,039.46. A typical £25/week umbrella margin reduces the inside figure to about £63,922, widening the gap to about £6,135.

Frequently Asked Questions

If you are inside IR35, HMRC treats you as a disguised employee. Your fee income is taxed as deemed employment income, employer NI is deducted first, then income tax and employee NI are applied to the remainder. If you are outside IR35, you operate as a genuine business: you pay yourself a salary (typically £12,570) and extract the rest as dividends, which attract lower tax rates.