Day Rate & IR35 Calculator
Instantly compare your estimated take-home pay working Inside IR35 (via an Umbrella) vs Outside IR35 (via your own Limited Company).
Excluding holidays/sick
Estimated Annual Take-Home
£68,921
* This is a simplified estimation for illustrative purposes only. Actual take-home will vary based on specific expenses, tax codes, and exact umbrella models. Seek professional accounting advice.
Understanding the IR35 Impact
If you are a contractor working in the UK, your IR35 status determines how you are taxed and drastically impacts your take-home pay.
Inside IR35 (The Umbrella Route)
If your contract is deemed Inside IR35, HMRC views you as an employee for tax purposes. Because you don't have a direct employer willing to put you on their payroll, you will typically use an Umbrella Company. The catch? The day rate offered by the client is the "assignment rate". Out of this rate, the following must be paid:
- Employer's National Insurance (13.8%)
- Apprenticeship Levy (0.5%)
- Umbrella Company Margin/Fee (e.g., £20/week)
Only after these "employer" taxes are deducted do you arrive at your gross salary. From that gross salary, your standard PAYE Income Tax and Employee NI are deducted. Because you are effectively paying both employer and employee taxes, the retention rate (the percentage you keep) is usually between 52% and 60%.
Outside IR35 (The Limited Company Route)
If your contract is Outside IR35, you are operating as a genuine B2B service provider. The day rate is paid gross directly into your Limited Company business bank account. You then extract money highly efficiently:
- Pay Corporation Tax on the company profits (19% to 25%).
- Pay yourself a small salary up to the National Insurance threshold (meaning zero income tax and zero NI).
- Draw the rest as dividends, which attract a much lower rate of tax (8.75% basic, 33.75% higher).
Because of these efficiencies, contractors working Outside IR35 typically enjoy a retention rate of 70% to 80%.
Frequently asked questions
What does Inside IR35 mean?
Inside IR35 means you are considered an employee for tax purposes by HMRC. You must pay Income Tax and National Insurance via PAYE. Typically, contractors use an Umbrella Company to process this payroll, which also means your contract rate must cover Employer's NI and the Apprenticeship Levy.
What does Outside IR35 mean?
Outside IR35 means you are operating as a genuine business. You are paid gross into your Limited Company, pay Corporation Tax on your profits, and can pay yourself through a highly tax-efficient mix of a small salary and dividends.
Why is the take-home lower Inside IR35?
When working Inside IR35, your assignment rate is treated as the 'total cost of employment'. This means Employer's National Insurance (13.8%), the Apprenticeship Levy (0.5%), and the Umbrella Company's margin are all deducted from the rate BEFORE your personal Income Tax and Employee NI are even calculated.