🇬🇧 2026/27 IR35 Rules

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).

Day Rate

Days per week

Weeks per year

Excluding holidays/sick

Umbrella Weekly Margin

Estimated Annual Take-Home

£68,238

59% Retention Rate

Contract Value£115,000

Umbrella Margin− £920

Employer NI & Levy− £14,638

Employee Income Tax− £27,205

Employee NI− £3,999

Net Take-Home£68,238

* 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%.

How the off-payroll rules work

Since April 2021 (private sector) and April 2017 (public sector), the responsibility for determining IR35 status shifted from the contractor to the end client. Here is the chain of responsibility:

End client reviews the working arrangement and issues a Status Determination Statement (SDS) — inside or outside IR35.
The SDS is passed down the supply chain to the agency and then to you.
If outside IR35, you are paid gross into your limited company. If inside, a fee payer (often the agency or umbrella) runs PAYE on the deemed payment.
HMRC's CEST tool (Check Employment Status for Tax) can help assess status. HMRC will stand behind CEST results only when inputs are complete and accurate.

⚠️ Small company exemption

If your end client meets 2 of these 3 criteria — fewer than 50 employees, turnover under £10.2m, balance sheet under £5.1m — they are a "small company". In this case, you self-determine your IR35 status and the old rules apply.

What to do if you disagree with an inside IR35 determination

Receiving an inside IR35 SDS does not have to be the end of the road. The off-payroll rules include a formal client-led disagreement process:

Write to the end client formally stating you disagree with the SDS and explain why (using the CEST tool, your own evidence, and contracts).
The client must respond within 45 days with either a revised SDS (changing status to outside) or written reasons for keeping the inside determination.
If the client maintains their position, you can refer the matter to HMRC. You may also seek a specialist IR35 tax adviser or take legal advice.
Ensure your contract and working practices genuinely reflect a business-to-business relationship: substitution clauses, control, financial risk, and mutuality of obligation all matter.

Note: If the client fails to respond within 45 days, the liability for any unpaid tax can shift to them — a powerful incentive for them to engage.

The umbrella company deductions explained

When you are inside IR35 and use an umbrella company, your assignment rate is not your gross pay. The full employment cost chain looks like this:

Deduction	Rate / Amount	Example (£400/day, 5 days/wk)
Assignment rate	—	£2,000/week
Employer NI (above £175/wk)	15%	−£273/week
Apprenticeship Levy	0.5%	−£9/week
Employer pension (auto-enrolment)	3%	−£52/week
Umbrella margin	~£25–£30/wk	−£27/week
= Gross taxable pay	—	~£1,639/week
Employee NI (8% on excess)	8% / 2%	−£115/week
Income Tax (PAYE)	20%–40%	−varies
Employee pension	5%	−£82/week
= Net take-home	—	~£1,100–£1,150/week

Holiday pay (12.07%) may be rolled up into the assignment rate or retained — check your umbrella contract. Employer NI rose from 13.8% to 15% from April 2025.

Compare your retention rate now

See exactly how much you keep inside vs outside IR35, or check whether an umbrella is giving you the right net pay.

Ltd Company Calculator →Umbrella Checker →

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.