Contract details
£
£
£
Annual take-home comparison
£0
difference per year
—Inside IR35
—Outside IR35
—Tax inside
—Tax outside
For guidance only — not financial, tax or legal advice. Verify with a qualified professional.
IR35 — frequently asked questions
What is IR35 and how does it affect contractors?
IR35 is tax legislation that targets contractors who work through their own limited company but would be considered an employee if engaged directly. If HMRC determines you're "inside IR35," you pay tax and NI as if you were an employee — but without employment rights like sick pay, holiday or pension contributions. Since April 2021, medium and large private sector clients are responsible for determining IR35 status.
How much less do I take home inside IR35?
Contractors inside IR35 typically take home 15–25% less than outside IR35 at the same day rate. The exact difference depends on your rate, but the main cost is employer NIC at 15% (paid by the fee-payer) which reduces the amount available as salary, plus employee NIC at 8% and income tax. Outside IR35, you can pay yourself a small salary and take the rest as dividends taxed at lower rates.
What is the optimal salary for a Ltd company director outside IR35?
The most tax-efficient salary for 2026/27 is £12,570 — matching the personal allowance. At this level you pay no income tax on the salary, and if you're the sole employee, the Employment Allowance of £10,500 covers most of the employer NIC. The remaining company profits can then be extracted as dividends at lower tax rates (8.75% basic, 33.75% higher).
Who decides if a contract is inside or outside IR35?
For medium and large private sector clients, the client (end hirer) is responsible for making the IR35 determination and providing a Status Determination Statement (SDS). For small private sector clients, the contractor's own limited company still makes the determination. HMRC's Check Employment Status for Tax (CEST) tool can help, though many advisors recommend independent legal reviews for borderline cases.
Can I claim expenses inside IR35?
Inside IR35, you can only claim expenses that a regular employee could claim — which in practice means very few. You cannot claim travel to your regular workplace, home office costs, or equipment in most cases. Outside IR35, your limited company can claim legitimate business expenses including travel, equipment, accountancy fees, insurance and training, reducing your corporation tax bill.