IR35 Calculator: Inside vs Outside Take-Home
Compare your annual take-home for the same UK day rate under Inside IR35 (umbrella / PAYE) and Outside IR35 (limited company). Uses 2024/25 tax rates and the standard salary-plus-dividends optimisation.
Understanding the numbers
The gap between Inside and Outside IR35 is real money — often £10,000–£25,000 per year for a mid-range contractor. Here's what's driving it in each column.
Inside IR35 (umbrella) — the deductions stack
When a role is inside IR35, you can't invoice via a limited company for that engagement. You use an umbrella (or PAYE via the agency). The umbrella receives your gross day-rate income and pays out:
- Their margin: ~£20–30/week for administration.
- Apprenticeship levy: 0.5% of what's left.
- Employer NI: 13.8% on the amount above £9,100/year (the secondary threshold). This is technically the umbrella's cost, but it comes out of your gross rate — one of the biggest reasons umbrella take-home is lower.
- Your salary: what's left is paid as PAYE salary — subject to income tax (20/40/45%) and employee NI (8% / 2%).
Outside IR35 (limited company) — the optimisation
Outside IR35 means you can invoice as a limited company. The standard tax-efficient structure:
- Small director salary (£12,570 by default here) — matches the personal allowance so no income tax; below the £9,100 secondary threshold means no employer NI. Salary is a company expense that reduces corporation tax.
- Corporation tax on the remaining profit: 19% up to £50,000, 25% above £250,000, with marginal relief between.
- Dividends from post-tax profit: first £500 tax-free, then 8.75% (basic), 33.75% (higher), 39.35% (additional). No NI on dividends.
The IR35 Inside vs Outside Decision Kit (£19) adds a 20-question CEST-style status scorecard, a pension-optimiser for the Ltd path, and a full umbrella waterfall — all in one Excel workbook you can share with your accountant.
Frequently asked questions
What is IR35 and why does it matter?
IR35 is HMRC's off-payroll working legislation. If HMRC deems your engagement 'inside IR35', you must be paid as if you were an employee — usually via umbrella or PAYE — which means income tax and both employee and employer NI come out of your day rate. Outside IR35 means you can invoice as a limited company and take a small salary + dividends, which is more tax-efficient. Since April 2021, for medium and large private-sector clients, the client (not you) decides your IR35 status.
How does this calculator estimate umbrella take-home?
It takes your gross contract value (day rate × days worked), deducts the umbrella margin, apprenticeship levy (0.5%), and employer NI (13.8% on income above the secondary threshold), then applies employee income tax and Class 1 NI on what's left. This mirrors how a compliant PAYE umbrella actually processes a contract.
How does the limited company calculation work?
For Outside IR35, we assume you take an optimal director salary (£12,570 — the tax-free personal allowance, also avoiding employer NI up to the secondary threshold), then pay corporation tax on the remaining company profit. What's left comes to you as dividends, taxed at 8.75% / 33.75% / 39.35% after the £500 dividend allowance. This is the standard limited-company optimization.
What are the 2024/25 rates used here?
Personal allowance £12,570 (tapered above £100k), basic rate 20% (to £50,270), higher rate 40% (to £125,140), additional rate 45%. Employee NI 8% (£12,570–£50,270), 2% above. Employer NI 13.8% above £9,100 (secondary threshold). Corporation tax: 19% up to £50k profit, 25% above £250k, with marginal relief in between. Dividend allowance £500; dividend tax 8.75% / 33.75% / 39.35%.
Should I go umbrella (inside) or limited (outside)?
You don't always get to choose — the client decides your IR35 status. If they've determined you're inside, you can't legally invoice via a limited company for that role. If you have genuine outside-IR35 work, a limited company is almost always more tax-efficient, especially at day rates above £400/day. This calculator shows exactly how big that gap is at your specific rate.
What isn't included?
Student loan repayments, pension contributions, private mileage/expenses, employer pension contributions on your behalf (if via umbrella), business expenses on the limited-company side, and the personal allowance taper above £100,000 gross. This is a good ballpark for typical contractor day rates; consult a specialist contractor accountant for a precise plan.
Estimates based on 2024/25 UK tax rates and thresholds. Contractor outcomes depend on many factors not modelled here. Not tax advice — consult a qualified accountant.
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