If your contract work is caught by IR35, your take-home pay will usually be lower than if you operate outside IR35 through your own limited company. However, the size of that difference has changed significantly over the years.
In this article, we’ve used data from our IR35 calculator to illustrate the financial impact of IR35 for the 2026/27 tax year.
The calculator compares take-home pay when working outside IR35 through your own limited company with take-home pay from an inside IR35 assignment paid through an umbrella company.
The terms “inside IR35” and “outside IR35” are widely used as shorthand rather than as terms in the legislation itself. “Inside IR35” generally means the IR35 rules apply to an engagement, while “outside IR35” means they do not.
What happens if you work inside IR35?
When you work outside IR35 through your limited company, company profits are subject to Corporation Tax, and you can typically extract income using a combination of salary and dividends.
For the inside IR35 comparison, our calculator assumes you are paid through an umbrella company.
In this case, the assignment rate paid to the umbrella company also has to cover the costs of employing you before your gross salary is calculated.
These can include:
- Employer’s National Insurance
- the umbrella company’s margin
- the Apprenticeship Levy, where applicable
- pension contributions, if selected
PAYE tax and Employee National Insurance are then deducted from your gross pay through payroll.
This is why an inside IR35 assignment rate of £500 per day does not mean the contractor receives a gross salary equivalent to £500 per day.
How much does IR35 affect take-home pay?
The figures below compare an outside IR35 limited company contract with an inside IR35 assignment paid through an umbrella company.
| Daily rate | Outside IR35 | Inside IR35 | Difference |
|---|---|---|---|
| £250 | £42,115 | £39,082 | £3,033 |
| £300 | £49,154 | £45,079 | £4,075 |
| £350 | £54,584 | £50,854 | £3,731 |
| £400 | £60,015 | £56,628 | £3,387 |
| £450 | £65,446 | £62,403 | £3,042 |
| £500 | £70,876 | £68,178 | £2,698 |
| £750 | £92,169 | £90,845 | £1,324 |
| £1,000 | £117,801 | £117,230 | £571 |
What assumptions have we used?
The examples above use the standard assumptions from our IR35 calculator:
- 5 days per week
- 46 working weeks per year
- England, Wales or Northern Ireland tax rates
- £12,570 limited company salary
- £3,000 annual limited company expenses
- no pension contributions
- no student or postgraduate loan
- £30 weekly umbrella margin
- rolled-up holiday pay
Change any of these assumptions and the take-home figures will change too, which is why IR35 calculators don’t always produce the same results.
Why has the IR35 take-home gap narrowed?
Dividend tax rates have risen in recent years, including increases in 2016 and 2026, while the dividend allowance has fallen from £5,000 to £500.
Corporation Tax rates have also increased significantly since 2023.
These changes have reduced the tax advantage of working through a limited company. At higher day rates, the difference can now be surprisingly small.
What inside IR35 rate do you need to match your outside IR35 income?
If you’re moving from an outside IR35 contract to an inside IR35 role, the key question is often how much more you need to charge to maintain the same take-home pay.
Our IR35 calculator works this out automatically and shows the estimated break-even inside IR35 rate based on the figures you enter.
This can be useful when comparing offers or negotiating an uplift for an inside IR35 contract.
What if you continue using your limited company inside IR35?
Not every inside IR35 arrangement involves an umbrella company.
In some cases, your limited company can remain in the contractual chain, with the IR35 rules applied to the relevant contract income. This requires a different calculation from the umbrella example above.
Use our IR35 deemed payment calculator to compare outside IR35 limited company income with an inside IR35 arrangement in which your limited company remains in the contractual chain.
Is IR35 still financially significant?
Yes, working inside IR35 will usually mean lower take-home pay than working outside IR35 at the same rate.
But the difference is often smaller than it used to be. As the examples above show, it can fall to just a few thousand pounds a year, and considerably less at higher day rates.
This means the rate on offer, the length of the contract, and the availability of work can be just as important as the tax difference.
Also try this article on how to negotiate an inside IR35 rate uplift.
Worried about an IR35 challenge?
HMRC investigations can be expensive and time-consuming. Qdos provides expert defence and financial cover if your status is challenged.