IR35 Inside vs Outside Calculator UK
See how much an “inside IR35” contract really costs you in take-home pay versus “outside” — and the rate uplift you’d need to negotiate to make an inside role match.
IR35 decides whether a contractor is taxed as a genuine business or as a “disguised employee” — and the difference to your pocket is large. Outside IR35, you bill through your own limited company and use the salary-and-dividend efficiency that makes contracting worthwhile. Inside IR35, you’re taxed almost exactly like an employee — PAYE and National Insurance on most of the fee, with no salary-dividend optimisation and no perks of actual employment. On a £500-a-day contract over 220 days, going from outside to inside cuts take-home by around £4,500 a year, and the contract value is quietly reduced by employer NI of over £12,000 before you’re even taxed. To match an outside role’s take-home, an inside contract typically needs a 10% higher day rate. This calculator compares both, shows where the money goes, and gives you the uplift figure to take into a rate negotiation. To work out the day rate itself, use the Freelancer Day Rate Calculator; to compare structures, the Sole Trader vs Ltd Calculator.
Contract income
Inside IR35 / PAYE assumptions
Outside IR35 Ltd assumptions
Tax allowances
Inside vs outside result
Estimated better option
Calculating…
Calculating…
Inside IR35 take-home
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Outside IR35 take-home
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Difference
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Outside retained profit
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Inside total tax/costs
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Outside total tax
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IR35 inside vs outside — quick lookup
The left table shows annual take-home at common day rates over 220 working days, outside versus inside IR35, and the gap between them. The right shows the share of the contract value you actually keep under each status. The pattern is consistent: inside IR35 costs you several thousand pounds a year and a chunk of your effective rate. The calculator runs your exact figures.
| Day rate | Outside | Inside | Gap |
|---|---|---|---|
| £300 | £50,307 | £44,835 | £5,472 |
| £400 | £61,020 | £56,048 | £4,972 |
| £500 | £71,732 | £67,261 | £4,472 |
| £650 | £87,801 | £81,485 | £6,317 |
| £800 | £103,257 | £96,854 | £6,403 |
| Day rate | Outside | Inside |
|---|---|---|
| £400 | 69% | 64% |
| £500 | 65% | 61% |
| £650 | 61% | 57% |
| £800 | 59% | 55% |
Figures assume 220 working days, a salary-and-dividend optimised company outside IR35, and deemed-employment PAYE inside, with employer NI taken from the assignment rate. The inside figures are illustrative — an umbrella company’s exact deductions vary. The consistent four-to-six percentage point gap in what you keep is the structural cost of being inside.
How IR35 changes what you’re taxed
IR35 — the off-payroll working rules — exists to stop people working like employees while paying tax like a business. The status of a contract, inside or outside, is determined by the working relationship: control, substitution, mutuality of obligation, and how integrated you are into the client’s organisation. Whatever the determination, it completely changes the tax machinery your money passes through.
Outside IR35 — taxed as a genuine business
Outside IR35, you operate as a real company and keep all the tax efficiency that brings:
This is the contractor’s normal model: a modest salary plus dividends, Corporation Tax instead of higher-rate Income Tax, and no National Insurance on the dividend portion. It’s why contracting can pay more than employment for the same headline rate — you keep a larger share. Outside IR35 is the status worth protecting.
Inside IR35 — taxed as a disguised employee
Inside IR35, the tax efficiency vanishes and you’re treated almost exactly like an employee:
Two things make inside expensive. First, employer National Insurance is deducted from the assignment rate before you’re paid — on a £110,000 contract that’s over £12,000 gone before any of your own tax. Second, you lose the salary-and-dividend efficiency entirely: the whole amount is taxed as employment income at PAYE rates. And critically, you get none of the rights of a real employee — no holiday pay, sick pay, pension auto-enrolment from the client, or redundancy protection. You’re taxed like staff but treated like a supplier.
Worked examples
Four day rates over 220 working days, showing the take-home gap and what an inside determination really costs.
Scenario 1 · £500/day, outside IR35
The contractor model working as intended
Salary + dividends, Corporation Tax 19%
Take-home: £71,732 (65% of contract value)
Outside IR35, the £110,000 flows through the company efficiently — a small salary, the rest as dividends after Corporation Tax. The contractor keeps £71,732, about 65% of the contract value. This is the baseline that makes contracting attractive: a meaningfully larger share kept than an employee on the same gross would see.
Scenario 2 · £500/day, inside IR35
The same contract, taxed as employment
Deemed pay £97,764 → PAYE + employee NI
Take-home: £67,261 (61%) · −£4,472 vs outside
Same rate, same days, inside IR35 — and £4,472 less in your pocket. Over £12,000 of employer NI is stripped from the contract value before you’re even taxed, then the deemed salary faces full PAYE and employee NI with no dividend efficiency. You keep 61% instead of 65%, and get none of an employee’s benefits for the privilege.
Scenario 3 · The rate uplift to break even
What an inside role must pay to match
Inside rate to match: ~£550/day
Required uplift: ~10%
This is the number to take into a negotiation. To leave you as well off as an outside £500-a-day contract, an inside role needs to pay around £550 a day — roughly a 10% uplift. If a client moves a role inside IR35 without raising the rate, they’re effectively cutting your pay by that much. Knowing the uplift figure turns “inside” from a take-it-or-leave-it into a rate conversation.
Scenario 4 · £800/day, the gap widens
Higher rates, bigger absolute cost
Outside take-home £103,257 · Inside £96,854
Gap: £6,403 a year
At higher rates the percentage gap is similar but the cash gap grows — £6,403 a year at £800 a day. The more you earn, the more the lost dividend efficiency and the employer NI deduction add up in absolute terms. For senior contractors, an inside determination can quietly cost the price of a decent holiday or a chunk of a pension contribution every year.
Where the money goes inside IR35 — the real cost
Most IR35 calculators give you two take-home numbers and stop. The useful part is understanding why inside costs more — because each reason is something you can sometimes negotiate around or plan for. Four things change when a contract goes inside, in order of impact:
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1
Employer NI is taken off the top
Before you see a penny, employer National Insurance at 13.8% is deducted from the assignment rate — over £12,000 on a £110,000 contract. This is money that, outside IR35, would never have left the pot. It’s the single biggest hidden cost.
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2
No salary-and-dividend efficiency
The whole deemed salary is taxed as employment income through PAYE, with employee NI on top. You lose the lower dividend rates and the NI-free dividend portion that make contracting tax-efficient. The bulk of your income jumps to full Income Tax rates.
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3
No deductible business expenses
Outside IR35 you can offset legitimate business costs against profit. Inside, the usual contractor expenses generally can’t be claimed against the deemed salary, so travel, equipment, and other costs come straight from taxed income.
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4
None of the employee benefits
Despite being taxed as an employee, you typically get no holiday pay, sick pay, redundancy, or notice protection. You carry employment-level tax with supplier-level security — the worst of both worlds, and the reason the rate must compensate.
£110k contract — outside vs inside, where it goes
The same gross, split very differently:
Laying it out this way shows the cost isn’t one tax — it’s the loss of an entire structure. The employer NI deduction, the lost dividend efficiency, the disallowed expenses, and the missing employee rights compound into roughly £4,500 a year on a £500-a-day contract, and a meaningfully lower share of every future rate. None of it is illegal or avoidable once a contract is genuinely inside; the point is to price it in. An inside contract isn’t simply worse — it’s worth around 10% less, and a rate that reflects that can make it perfectly acceptable. The mistake is accepting an inside role at an outside rate.
What you can actually do about it
Three practical responses follow from the maths. First, negotiate the rate: if a role is inside, ask for the ~10% uplift that restores your take-home, armed with the figure rather than a vague sense of unfairness. Second, make pension contributions: paying into a pension from a deemed salary can still be tax-efficient and is one of the few levers left inside IR35. Third, weigh the whole picture: a stable, long inside contract at a good rate can beat a precarious outside one — the tax status is one factor, not the only one. The calculator gives you the hard numbers; the decision still belongs to you.
Two scenarios that change the decision
What if…
The client moved your role inside without a raise?
What if…
You got the 10% uplift on an inside role?
Key IR35 terms explained
IR35 brings together employment status, tax, and contract law. The ten terms below cover what you’ll meet when a contract’s status is determined and you work out what inside or outside means for your pay.
- IR35 off-payroll working rules
- UK rules that decide whether a contractor working through their own company is genuinely self-employed or a “disguised employee” who should be taxed like staff. The determination drives how much tax you pay.
- Inside IR35
- A contract judged to be like employment. You’re taxed via PAYE and National Insurance on most of the fee, with no salary-dividend efficiency and no business expenses — but no employee rights either.
- Outside IR35
- A contract judged to be genuine business-to-business. You keep the full limited-company tax efficiency — small salary, dividends, Corporation Tax, deductible expenses — which is what makes contracting financially attractive.
- Deemed payment / deemed salary
- The amount treated as your employment income inside IR35, after employer NI is removed from the assignment rate. The whole of it is taxed at PAYE rates, with no dividend portion.
- Employer National Insurance
- NI at 13.8% that, inside IR35, is deducted from the assignment rate before you’re paid — over £12,000 on a £110,000 contract. The largest hidden cost of an inside determination.
- Status Determination Statement SDS
- The written decision from the client (in medium and large businesses) stating whether a role is inside or outside IR35, with reasons. You have a right to receive it and to dispute it.
- CEST Check Employment Status for Tax
- HMRC’s online tool that clients use to help determine IR35 status. Widely criticised as blunt, but its output often drives the decision, so understanding the factors it weighs is useful.
- Substitution
- Whether you can send someone else to do the work in your place. A genuine right of substitution points to outside IR35, since employees can’t typically be substituted. One of the key status tests.
- Mutuality of obligation MOO
- Whether the client must offer work and you must accept it. Ongoing mutual obligation suggests employment (inside); a project with no obligation beyond it suggests business (outside).
- Umbrella company
- A company that employs inside-IR35 contractors and runs their pay through PAYE. Common for inside roles, but watch the margin and avoid non-compliant schemes promising inflated take-home, which can be tax avoidance.
Five mistakes contractors make with IR35
IR35 is where contractor finances most often go wrong, through misjudged rates or risky schemes. These five errors, drawn from the recurring r/ContractorUK and r/UKPersonalFinance threads, are the costly ones.
Accepting an inside role at an outside rate
An inside determination at the same day rate is an effective pay cut of around £4,500 a year on a £500-a-day contract. Contractors who don’t renegotiate simply absorb it. Treat a move inside as a trigger to ask for the ~10% uplift that restores your take-home — with the figure to justify it.
Cost: a hidden £4,500/yr pay cut Fix: negotiate the ~10% inside upliftFalling for “90% take-home” umbrella schemes
No compliant inside-IR35 umbrella can return 90% of your contract — the tax simply doesn’t allow it. Schemes promising this are usually disguised remuneration or loan arrangements that HMRC pursues, leaving you with the unpaid tax plus interest years later. If take-home looks too good, it’s a tax-avoidance scheme.
Cost: years-later tax bills plus interest Fix: use only compliant PAYE umbrellasNot checking the Status Determination Statement
For medium and large clients, you have a right to the written SDS explaining the inside/outside decision and its reasons — and a right to dispute it. Contractors who accept a blanket “all inside” determination without challenge sometimes pay inside tax on a role that’s genuinely outside. Read it and question weak reasoning.
Cost: inside tax on a genuinely outside role Fix: read the SDS and dispute if it’s wrongIgnoring pension contributions inside IR35
Inside IR35 strips away most tax levers, but pension contributions remain one of the few that work. Salary sacrifice into a pension from a deemed salary can reduce the tax hit meaningfully. Contractors focused only on the headline take-home often miss this, leaving an efficient option on the table.
Cost: missing the one inside tax lever left Fix: use pension contributions to cut the taxJudging a contract on tax status alone
Outside IR35 is more tax-efficient, but it isn’t the only factor. A stable, long inside contract at a good rate can beat a short, uncertain outside one. Turning down good work purely because it’s inside — without weighing rate, duration, and security — can cost more than the tax difference. Price the status, then judge the whole deal.
Cost: refusing good work over status alone Fix: weigh rate, length, and security tooFrequently asked questions
How much less do you take home inside IR35?
On a £500-a-day contract over 220 days, going from outside to inside IR35 cuts take-home by around £4,500 a year — roughly four to six percentage points of the contract value. The gap grows in cash terms at higher rates: about £6,400 a year at £800 a day.
The cost comes from employer National Insurance taken off the assignment rate first (over £12,000 on a £110,000 contract), the loss of salary-and-dividend efficiency, and the inability to claim business expenses. The calculator works out your exact figures for both statuses.
What’s the difference between inside and outside IR35?
Outside IR35 means you’re a genuine business — you bill through your limited company and keep the salary-and-dividend tax efficiency, with deductible expenses. Inside IR35 means you’re treated as a disguised employee, taxed via PAYE and National Insurance on most of the fee, with no dividend efficiency and no business expenses.
The status is decided by the working relationship — control, substitution, mutuality of obligation, and integration into the client. Crucially, inside IR35 gives you employee-level tax with none of the employee benefits like holiday or sick pay.
What day rate uplift do I need for an inside IR35 role?
Roughly 10%. To match the take-home of an outside £500-a-day contract, an inside role needs to pay around £550 a day. This restores the money lost to employer NI, the missing dividend efficiency, and disallowed expenses.
This is the figure to take into a rate negotiation. If a client moves a role inside without raising the rate, they’re effectively cutting your pay by that much. Knowing the uplift turns “the role is inside now” into a concrete conversation about the rate.
Why is employer NI taken from my contract value inside IR35?
Inside IR35, the fee-payer (your agency or umbrella) is responsible for employer National Insurance, and in practice it’s deducted from the assignment rate before you’re paid. So on a £110,000 contract, over £12,000 disappears as employer NI before any of your own Income Tax or NI is calculated.
This is the biggest hidden cost of an inside determination, and the reason your headline rate buys far less than it does outside IR35. It’s money that, outside, would never have been taken from the pot at all.
Can I challenge an inside IR35 determination?
Yes. For medium and large clients, you have a right to receive a written Status Determination Statement (SDS) explaining the decision and its reasons, and a right to dispute it through the client’s process.
Some clients issue blanket “all inside” determinations to avoid risk, even where roles are genuinely outside. If the reasoning looks weak — for example ignoring a genuine right of substitution or lack of mutuality of obligation — it’s worth challenging, ideally with advice from an IR35 specialist. Don’t simply accept inside tax on an outside role.
Are “90% take-home” umbrella schemes legitimate?
No. No compliant inside-IR35 arrangement can return 90% of your contract value — the tax doesn’t allow it. Schemes promising this are almost always disguised remuneration or loan schemes that HMRC actively pursues.
If you use one, you can face the unpaid tax, interest, and penalties years later, long after the promoter has gone. A compliant PAYE umbrella will return broadly what this calculator’s inside figure shows. If take-home looks too good to be true inside IR35, it’s a tax-avoidance scheme to avoid.
Can I reduce my tax inside IR35?
The options are limited, but pension contributions remain effective. Salary sacrifice into a pension from your deemed salary reduces the income subject to tax and National Insurance, which can meaningfully soften the inside-IR35 hit.
Beyond that, most of the levers that make contracting tax-efficient — the salary-dividend split, business expenses — simply don’t apply inside IR35. Negotiating a higher rate and maximising pension contributions are the two practical responses. Avoid any scheme promising more than that.
Is an inside IR35 contract ever worth taking?
Often, yes — at the right rate. Inside IR35 isn’t inherently a bad deal; it’s a worse deal at the same rate. With around a 10% rate uplift it matches an outside contract’s take-home, and a stable, long inside engagement can beat a short, uncertain outside one.
Judge the whole picture: rate, contract length, security, and the work itself, not just the tax status. The calculator gives you the hard numbers on take-home; weigh those against everything else the role offers before deciding.
Related calculators
An IR35 decision connects to the day rate behind it, the company structure, and the take-home under each route. These calculators handle each piece.
Methodology & sources
How the maths works
For outside IR35, the calculator treats the contract value as company income, applies a tax-efficient salary at the personal allowance, deducts employer National Insurance and Corporation Tax, then taxes the remaining profit as dividends — the standard limited-company model. For inside IR35, it first removes employer National Insurance from the assignment rate to give the deemed salary, then applies PAYE Income Tax and employee National Insurance to that deemed salary, with no dividend efficiency or expense deductions. The difference between the two take-home figures is the cost of being inside, and the rate uplift is the inside day rate that restores the outside take-home.
These are illustrative comparisons to show how IR35 status changes take-home. Real outcomes depend on your exact contract, working days, expenses, pension contributions, an umbrella company’s specific margin and deductions, and the tax year’s rates, all of which vary. The aim is to reveal the structural cost of an inside determination and the rate needed to offset it, not to replace tailored advice or an umbrella’s own illustration.
Assumptions and conventions used
- Outside: limited company, salary at personal allowance + dividends
- Inside: employer NI removed from rate, then PAYE + employee NI on deemed salary
- Employer NI: 13.8% above the secondary threshold
- Corporation Tax: 19% to £50k, marginal relief to £250k, 25% above (outside)
- Dividend tax: 8.75% / 33.75% / 39.35% after the £500 allowance (outside)
- Working days default around 220; adjust for your own pattern
- Umbrella margins and apprenticeship levy not separately modelled
- Rates and thresholds shown are illustrative current UK figures