UK Contractor Calculator 2025/26

What Is IR35?

IR35 is UK tax legislation that determines whether a contractor is genuinely self-employed or a "disguised employee" for tax purposes. If your contract falls inside IR35, your income is taxed as employment income — meaning you pay full income tax and National Insurance, with employer NI deducted from your contract rate. If you're outside IR35, you can operate through a limited company and pay yourself a tax-efficient mix of salary and dividends.

Since April 2021, medium and large private-sector clients are responsible for determining your IR35 status via a Status Determination Statement (SDS). For small companies, contractors can still self-assess. HMRC provides the CEST tool for guidance, though many contractors seek specialist IR35 insurance or legal reviews.

Outside IR35 — Ltd Company

Working outside IR35 through your own limited company is the most tax-efficient option. The typical strategy for 2025/26 is to pay a director's salary of £5,000 (the employer NI threshold — no NI payable) or £12,570 (the personal allowance — uses the tax-free amount but triggers employer NI). Remaining profits are subject to 19% Corporation Tax (small profits rate for profits under £50,000), and extracted as dividends taxed at 8.75% (basic), 33.75% (higher), or 39.35% (additional).

You can also claim allowable business expenses — accountancy fees (£80–£150/month), professional indemnity insurance, equipment, and travel to temporary workplaces — reducing your Corporation Tax bill. The key tests for outside IR35 are: genuine right of substitution, control over how/when/where you work, and no mutuality of obligation.

Inside IR35 — Deemed Employment

When your contract is inside IR35, you're treated as a deemed employee. Employer NI (15%) and Apprenticeship Levy (0.5%) are deducted from your contract rate — not paid on top by the client. What remains is your deemed salary, subject to standard PAYE deductions: income tax and employee NI.

At a typical day rate of £450 (46 weeks, 5 days), the difference between inside and outside IR35 is approximately £15,000–£20,000 per year in take-home pay. If all your contracts are inside IR35, you may find an umbrella company simpler than maintaining a limited company.

Umbrella Company — PAYE

An umbrella company acts as your employer. They receive your contract payments, deduct their weekly margin (typically £25–£40), employer NI, and Apprenticeship Levy, then pay you the remainder through PAYE. You get a payslip like any other employee. It's the simplest option — no company accounts, no Corporation Tax returns.

The take-home from an umbrella is very similar to inside IR35 via a limited company, minus the umbrella's weekly fee. Choose an FCSA-accredited umbrella with transparent fees. Avoid schemes promising unusually high take-home pay — HMRC actively investigates these.

Which Option Should You Choose?

• → Outside IR35 + Ltd: Best take-home. Choose if your contract genuinely passes the IR35 tests and you want maximum tax efficiency.
• → Inside IR35 + Ltd: Keep your company if you have a mix of inside and outside contracts, or plan to return to outside IR35 work.
• → Umbrella: Choose if all your work is inside IR35 and you want zero admin. The £1,000–£2,000/year difference versus a Ltd company rarely justifies the accounting costs.