IR35 Calculator 2025/26
Inside vs Outside
Most IR35 calculators treat your day rate as your gross salary inside IR35 — which is wrong. When a contract falls inside IR35, employer’s National Insurance (15%) is deducted from the assignment rate before your deemed salary is calculated. This calculator models that correctly, alongside the full outside IR35 limited company calculation, and tells you exactly what day rate increase you need to negotiate to break even if pushed inside.
What is IR35 and how does it affect contractors?
IR35 (now formally called the Off-Payroll Working Rules) is legislation designed to ensure that contractors who work like employees pay broadly the same tax as employees. If your contract is determined to be “inside IR35”, you are treated as a deemed employee of the end client for tax purposes — income tax and National Insurance are deducted at source, just like PAYE. If your contract is “outside IR35”, you can continue to operate through your limited company, pay yourself a low salary, and extract profits as dividends.
The financial difference is substantial. A contractor on £500/day outside IR35 might take home £80,000+. The same contractor inside IR35 at the same rate might take home £60,000–£65,000 — a difference of £15,000–£20,000 per year, depending on circumstances.
The employer NI problem most calculators get wrong
When a contract is inside IR35 and processed through an umbrella company, the umbrella deducts employer’s National Insurance from your assignment rate — the rate paid by the client — before calculating your gross pay. This means you never see that money as salary. It goes straight to HMRC as employer NI.
Your day rate: £500. Working 220 days = £110,000 assignment rate.
Wrong approach (most calculators): Treats £110,000 as your gross salary and deducts PAYE from there. This overstates your take-home pay.
Correct approach: Employer NI (15%) on earnings above the secondary threshold (£5,000) = roughly £15,750. Umbrella margin (£25/week × 48 weeks) = £1,200. Your gross deemed salary is then only ~£93,050 — and income tax + employee NI is calculated on that lower figure.
The difference in calculated take-home pay between these two approaches can be £3,000–£5,000 per year. Using an incorrect calculator can lead contractors to underestimate the true cost of an inside IR35 determination — and fail to negotiate an adequate rate uplift.
Outside IR35 — the limited company extraction strategy
Operating outside IR35 through a limited company allows a tax-efficient extraction strategy: pay yourself a salary at or just above the National Insurance secondary threshold (£9,100 in 2025/26) to avoid employee and employer NI, and extract the remaining profits as dividends. Corporation tax is paid on company profits first (19% for profits under £50,000, 25% for profits above £250,000, with marginal relief in between), then dividend tax is paid on dividends received above the £500 dividend allowance.
Dividend tax rates in 2025/26 are 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). Because these are lower than income tax rates, and because employer NI doesn’t apply to dividends, this extraction method results in significantly higher take-home pay — but only if the contract is genuinely outside IR35.
The day rate uplift — what to negotiate
When a client pushes a contract inside IR35, the contractor loses the tax efficiency of the limited company structure. To maintain the same net income, they need a higher day rate. The uplift required is typically in the range of 15–25% depending on the contract rate and individual circumstances, because the client effectively gains an “employee” without paying employer NI or employment costs.
This is the most actionable output from any IR35 calculator — not just the headline take-home difference, but the specific day rate you should be asking for.
IR35 status determination — who decides?
Since April 2021, for medium and large private sector clients (and since April 2017 for public sector), the end client is responsible for determining IR35 status and issuing a Status Determination Statement (SDS). Small companies (two of: fewer than 50 employees, turnover under £10.2m, balance sheet under £5.1m) are exempt — in those cases the contractor’s personal service company determines its own status.
HMRC’s CEST (Check Employment Status for Tax) tool can be used to determine status, but it is not legally binding and has been criticised for failing to consider all relevant case law factors — particularly mutuality of obligation.
Substitution: Can you send a substitute to do the work? A genuine, unfettered right of substitution is the strongest indicator of self-employment. Control: Does the client control how, when, and where you work? Employee-like supervision suggests inside IR35. Mutuality of obligation: Is the client obliged to offer work and are you obliged to accept it? Ongoing obligation suggests employment. Financial risk: Do you bear financial risk — correcting mistakes at your own cost, providing your own equipment, having multiple clients? Risk-bearing suggests self-employment. Integration: Are you part and parcel of the client’s organisation, or clearly an external supplier?
Frequently asked questions
Dividend tax, pension allowances, P11D benefits — all the contractor tax tools.
