Compare your take-home pay across all three contractor options — outside IR35, inside IR35, and umbrella company — side by side.
Outside IR35
Ltd Company
£65,162
per year · £5,430/mo
Effective tax
37.0%
You keep
63.0%
Inside IR35
Ltd Company
£60,276
per year · £5,023/mo
Effective tax
41.8%
You keep
58.2%
vs best
−£4,887
Umbrella
PAYE
£59,728
per year · £4,977/mo
Effective tax
42.3%
You keep
57.7%
vs best
−£5,435
| Day rate | Outside IR35 | Inside IR35 | Umbrella |
|---|---|---|---|
| £300/day | £48,870 | £43,841 | £43,293 |
| £400/day | £59,732 | £54,797 | £54,249 |
| £500/day | £70,593 | £65,754 | £65,206 |
| £600/day | £80,826 | £73,899 | £73,540 |
| £750/day | £94,415 | £87,255 | £86,754 |
| £1000/day | £120,048 | £112,285 | £111,784 |
Based on 5 days/week, 46 weeks/year. Outside IR35 assumes £12,570 salary, £3,600 expenses. Umbrella assumes £25/week margin.
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.
Working outside IR35 through your own limited company is the most tax-efficient option. The typical strategy for 2026/27 is to pay a director's salary of £12,570 (the personal allowance — no income tax, and it earns a State Pension qualifying year; employer NI of £1,135.50 is payable but is deductible against Corporation Tax) or £5,000 (the employer NI secondary threshold — no NI at all, but it is below the £6,500 Lower Earnings Limit so it does not count towards your State Pension; a salary between £6,500 and £12,570 keeps the qualifying year). Remaining profits are subject to Corporation Tax at 19% on profits up to £50,000, 25% above £250,000, and an effective rate in between under marginal relief (the calculator applies this), and extracted as dividends taxed at 10.75% (basic), 35.75% (higher), or 39.35% (additional) above the £500 dividend allowance — the basic and higher dividend rates rose by 2 percentage points on 6 April 2026.
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.
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.
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.
Outside IR35 means you're genuinely self-employed and can pay yourself via salary and dividends through a limited company. Inside IR35 means you're a deemed employee — employer NI is deducted from your contract rate, and you pay standard PAYE tax. The take-home difference is typically £15,000–£20,000 per year for a £450/day contractor.
If your work is outside IR35, a limited company gives the best take-home pay. If all your work is inside IR35, an umbrella company is simpler and the take-home difference is small (£1,000–£2,000/year). If you mix inside and outside contracts, keep your limited company for flexibility.
The two common choices are £12,570 (the personal allowance — no income tax, a State Pension qualifying year, employer NI of £1,135.50 which is Corporation Tax deductible) or £5,000 (the employer NI threshold — no NI at all, but below the £6,500 Lower Earnings Limit so no State Pension qualifying year). Most sole directors without other income choose £12,570; compare both in the calculator's advanced options.
Income Tax (England, Wales & NI)
National Insurance
Corporation Tax
Dividend Tax