IR35 Tax Calculator – Inside or Outside? (2026/27)

What does this IR35 calculator compare?

This calculator compares two common ways of working as a contractor:

• Outside IR35 – you work through your own limited company and extract the company’s profits as salary and dividends.
• Inside IR35 – you take the same assignment rate but are paid through an umbrella company, with PAYE tax and National Insurance deducted from your salary.

This distinction is important because, technically, ‘inside IR35’ does not mean ‘umbrella company’. IR35 is concerned with the tax treatment of an engagement; it does not itself require a contractor to use an umbrella company. HMRC explains the current off-payroll working rules here.

In practice, however, ‘inside IR35’ has become widely used in the contracting market to describe assignments where the contractor cannot receive the income through their limited company in the usual salary-and-dividend way. Agencies and clients commonly require contractors taking these assignments to work through an umbrella company.

That’s the real-world comparison this calculator is designed to make: what would you take home from an outside-IR35 contract through your limited company, compared with an inside-IR35 contract through an umbrella?

For more on the practical differences between the two structures, see our guide to limited company vs umbrella company contracting.

Why might our figures differ from other IR35 calculators?

Not all IR35 calculators are calculating the same thing.

Some calculators take the contract income, deduct Employer National Insurance and then calculate PAYE tax and Employee National Insurance on the resulting employment income. This can be useful for illustrating the tax effect of treating an engagement as employment, but it does not necessarily represent what a contractor would receive through an umbrella company.

Our inside-IR35 calculation models an actual umbrella payment route. The assignment income has to fund employment costs before your taxable gross salary can be calculated.

These include:

• the umbrella company’s margin;
• Employer National Insurance;
• the Apprenticeship Levy, where applicable to the umbrella; and
• employer pension costs where relevant.

PAYE Income Tax, Employee National Insurance, student loan repayments and any employee pension deductions are then calculated from your pay.

This means our inside-IR35 take-home figure may be lower than one produced by a calculator which simply models the tax treatment of an inside-IR35 engagement without modelling the umbrella company itself.

Why does Employer National Insurance come out of the umbrella rate?

This causes more confusion than almost anything else about umbrella pay.

When an agency advertises an umbrella assignment at, say, £500 per day, that figure is normally the assignment rate paid to the umbrella company. It is not your gross salary.

The umbrella becomes your employer and has employment costs to meet. Employer National Insurance is one of those costs, so it is taken into account before your gross taxable salary is established. You can read more about Employer’s National Insurance and umbrella companies and the other employment costs deducted from the assignment rate.

You then pay Employee National Insurance from your gross salary in the normal way. Employer NI and Employee NI are therefore two separate amounts at different stages of the calculation. HMRC publishes the current National Insurance rates and thresholds.

This is also why you should not directly compare an outside-IR35 limited company rate with an umbrella gross salary figure. They are different things.

What does the outside IR35 calculation assume?

For the outside-IR35 side, we assume the assignment income is paid to your limited company.

The calculator deducts the business expenses and company pension contributions you enter, together with the director’s salary and any Employer National Insurance due. It then calculates Corporation Tax on the company’s taxable profits.

The remaining distributable profit is treated as dividends. Your personal tax position is then calculated using your salary and dividend income to arrive at your estimated take-home pay. See our guides to limited company dividends and the Dividend Allowance for more detail.

The Corporation Tax calculation includes the small profits rate, main rate and marginal relief where appropriate. HMRC’s current Corporation Tax rates and marginal relief rules are available on GOV.UK.

Director’s salary

The calculator defaults to an annual director’s salary of £12,570, but you can change this to reflect the way you actually pay yourself.

A higher salary does not automatically produce a higher take-home figure. Salary is normally deductible when calculating company profits, but it can also create Employer National Insurance, Employee National Insurance and Income Tax liabilities.

There is therefore no single salary figure which is right for every contractor. Our guide to the optimum limited company director’s salary explains the main considerations.

Employment Allowance

The calculator assumes your limited company cannot claim the Employment Allowance.

This is particularly relevant to the typical one-person contractor company. A company cannot claim the allowance if the only employee liable for secondary Class 1 National Insurance is also a director.

If your company has other employees, the position may be different. Our Employment Allowance guide explains when a limited company can qualify, while the full eligibility rules are available from HMRC.

If your company is entitled to claim the allowance, its actual Employer National Insurance cost could therefore be lower than the figure shown here.

Business expenses

Enter the annual expenses your company expects to incur in providing the outside-IR35 assignment.

These reduce company profit before Corporation Tax where they are allowable business expenses. They are not deducted from the umbrella side because they relate to the limited company scenario. Our limited company expenses guide covers the main costs contractors can claim.

Remember that entering £5,000 of company expenses does not mean you are personally £5,000 worse off. The company has incurred £5,000 of costs and, where those costs are deductible, they reduce its taxable profit.

Company pension contributions

The outside-IR35 pension field represents a contribution made directly by your limited company into your pension.

It is therefore not included in the take-home cash figure. The money has moved from the company into your pension rather than being extracted as salary or dividends.

Subject to the usual rules, employer pension contributions can be deductible when calculating Corporation Tax profits. Pension annual allowance and other pension tax rules can also apply, particularly to large contributions.

How is the umbrella calculation worked out?

The inside-IR35 side starts with exactly the same assignment rate and working pattern as the limited company calculation.

From the resulting assignment income, the calculator works out the costs associated with employing you through an umbrella company. What remains becomes the gross pay on which your personal deductions are calculated.

This is why a £500 per day umbrella rate does not mean you receive a £500 per day taxable salary. For a fuller explanation of the payment chain, see how an umbrella company works.

Umbrella margin

The umbrella margin is the amount charged by the umbrella company for employing you and operating payroll.

We allow you to enter the weekly margin yourself because charges vary between providers. The calculator multiplies this by the number of weeks you work rather than assuming you pay the umbrella for all 52 weeks of the year.

See our separate guide to umbrella company margins if you’re unsure which figure to enter.

Apprenticeship Levy

Large employers may be liable for the Apprenticeship Levy. Many umbrella companies operate payrolls large enough for the levy to apply.

Where it forms part of the umbrella’s employment costs, it reduces the amount of assignment income available to fund your gross pay. Our calculation therefore includes it.

This is another reason our figures can differ from simpler IR35 calculators which deduct Employer NI but do not model the other costs of umbrella employment. We explain the levy in more detail in our guide to the Apprenticeship Levy for umbrella workers.

Holiday pay

Umbrella workers are employees and are entitled to holiday pay.

With rolled-up holiday pay, holiday pay is paid alongside your normal wages rather than being retained for when you take leave.

With accrued holiday pay, an amount is held back and paid when you take holiday. Selecting accrued holiday pay will therefore reduce the immediate take-home figure shown by the calculator, because some of your remuneration is being retained for later payment rather than lost as tax.

See our guide to umbrella company holiday pay for a more detailed explanation.

Umbrella pension contributions

You can model no pension, standard auto-enrolment contributions or salary sacrifice.

Auto-enrolment contributions are based on qualifying earnings and include employee and employer contributions. The standard percentages are pre-filled but can be changed.

Salary sacrifice works differently. You agree to give up part of your cash salary and the employer contributes the corresponding amount to your pension. This can reduce Income Tax and National Insurance compared with receiving the same amount as salary, although pension limits and individual circumstances need to be considered.

Our guides explain umbrella company pensions and salary sacrifice for umbrella contractors in more detail.

What does ‘inside rate needed to match outside’ mean?

An outside-IR35 rate and an inside-IR35 umbrella rate are not directly equivalent.

If a £500-per-day outside contract produces more take-home pay than a £500-per-day umbrella contract, you would need a higher umbrella assignment rate to compensate for the difference.

The calculator estimates the umbrella assignment rate required to produce approximately the same annual take-home pay as the outside-IR35 limited company scenario you entered.

This can be particularly useful when comparing two contract offers or deciding what rate you would need to negotiate before accepting an inside-IR35 role.

Student loans and Postgraduate Loans

If you select a student loan plan, the calculator estimates repayments under the appropriate rules for each payment route.

The umbrella calculation reflects deductions through payroll. On the limited company side, salary and dividend income can both be relevant when working out the contractor’s eventual student loan liability through Self Assessment.

You can also include a Postgraduate Loan separately because postgraduate repayments can be due at the same time as repayments under an undergraduate student loan plan. See our guide to student loan repayments for contractors.

What if you pay Scottish Income Tax?

Select Scotland if you are a Scottish taxpayer.

Scottish Income Tax rates and bands apply to relevant non-savings, non-dividend income such as salary. Dividend tax is not devolved to Scotland, so UK dividend rates continue to apply to dividends received from your limited company.

The Scottish Government publishes the current Scottish Income Tax rates and bands.

This means the difference between the two working arrangements can change for Scottish taxpayers, particularly where the umbrella scenario produces a substantial PAYE salary.

Does inside IR35 always mean using an umbrella company?

No.

A client or agency could employ you directly and operate PAYE, and there are other ways an engagement subject to the Off-Payroll rules can be processed.

Nor should umbrella employment itself technically be described as being ‘inside IR35’. Once you are genuinely employed by an umbrella company, you are already being taxed as an employee. We explain this distinction separately in does IR35 apply to umbrella company employees?

However, in the contracting market, phrases such as ‘inside IR35 contract’ and ‘inside IR35 rate’ are now routinely used for roles where the contractor is expected to be paid through an umbrella company or another PAYE arrangement.

For that reason, this calculator uses the terminology contractors are likely to encounter when looking for work, while making clear that the inside calculation shown here specifically assumes payment through an umbrella company.

What about the original IR35 rules and deemed payments?

There is another IR35 calculation which is quite different from the umbrella comparison above.

Where the original IR35 rules apply, the contractor can still be working through their own limited company, but the company may have to calculate a deemed employment payment and account for PAYE and National Insurance.

This can still be relevant where responsibility for determining IR35 status remains with the contractor’s intermediary, including qualifying engagements with small private-sector clients.

That is not what this calculator models. See our guide to IR35 deemed payments and expenses for the limited-company calculation.

Important assumptions and notes

• The calculator uses 2026/27 Income Tax, National Insurance, Corporation Tax and dividend tax rates and thresholds.
• The same assignment rate and working pattern are used for both sides of the comparison.
• The outside-IR35 scenario assumes you work through your own limited company and that the engagement is genuinely outside IR35.
• The inside-IR35 scenario assumes you are employed and paid through an umbrella company.
• The limited company calculation assumes the company cannot claim the Employment Allowance. If your company qualifies, its Employer NI liability may be lower.
• Available company profits are assumed to be extracted as dividends rather than retained indefinitely in the company.
• Company pension contributions are treated as employer contributions and are not included in cash take-home.
• Business expenses are assumed to be allowable for Corporation Tax purposes.
• VAT is not included because VAT collected from a client is not company income for the purposes of this take-home comparison.
• Student loan and Postgraduate Loan calculations are estimates and individual circumstances can affect the final amount due.
• The calculator does not attempt to determine your IR35 status. See our IR35 guide for an explanation of the status rules.
• Figures are estimates and will not reproduce every payroll, accounting or personal tax situation.

Use the results as a comparison between the two working arrangements, rather than as a substitute for an umbrella payslip, company accounts or a personal tax calculation.