IR35 Tax Calculator

How the IR35 calculator works for 2026/27

If you contract through a UK limited company, IR35 is the single biggest line item on your tax bill that you do not control. Get the determination wrong, or get blanket-determined inside by a risk-averse client, and on a typical £500/day engagement the calculator below shows take-home falling by roughly £15,000 to £20,000 a year on the same gross contract rate. Your numbers will vary with rate, expenses and pension.

Our IR35 calculator compares inside-IR35 and outside-IR35 take-home for the same contract, applies 2026/27 rates, auto-optimises your director salary, and shows the FTE-equivalent gross a permanent role would have to pay to match the outside-IR35 number. This guide explains what the rules are, how to drive the calculator, and which factors actually decide your status.

Contents

• What IR35 is and how we got here
• How to use the calculator
• Worked example: a £500 a day contractor
• The CEST tool and how to read its verdicts
• The status tests that actually matter

What IR35 is and how we got here {#what-ir35-is}

IR35 is the shorthand for HMRC's intermediaries legislation, introduced in April 2000. It was designed to stop the "Friday-to-Monday" trick where an employee left their job on Friday, set up a limited company over the weekend, and started "consulting" for the same employer on Monday at the same desk for the same work, billing through their Ltd to slash income tax and National Insurance.

For seventeen years, the rules existed but were lightly enforced. The contractor's own limited company made the inside/outside determination, and HMRC had to prove it wrong if it disagreed. Enforcement was patchy, and a contractor industry grew up assuming the default answer was outside.

Two reforms gutted that arrangement:

• April 2017 (public-sector off-payroll reform): the public-sector end client became responsible for the status determination, and the fee payer in the chain (usually the agency) became liable for unpaid tax if the call was wrong. Blanket inside-IR35 determinations followed across NHS, central government and local authorities.
• April 2021 (private-sector off-payroll reform): the same shift was extended to medium and large private-sector clients. A client only counts as "small" (and the contractor-side determination survives) if it meets two of: turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees.

The rules did not change the underlying test for what makes someone genuinely self-employed. What changed was who carries the risk of getting that call wrong. The predictable result: large clients issued sweeping inside-IR35 determinations regardless of working practices, because the safest answer for the client was always inside. That cost is now sitting on the contractor's payslip.

How to use the calculator {#how-to-use}

The IR35 calculator needs five inputs to give you a useful answer:

1. Rate type. Pick daily, hourly or annual. Daily is the dominant pricing model in UK contracting; hourly is common for support and on-call work; annual is useful if the contract is a fixed Statement of Work value.
2. Rate amount. The headline gross. Daily £500-£700 is the meat of the UK contractor market; specialist tech, oil and gas, and senior change roles run higher.
3. Days or hours per week, and weeks worked per year. Use 44-48 weeks if you want a realistic number. Most contractors lose 4-8 weeks a year to bench time, holiday and admin. Using 52 weeks gives you the brochure number, not the lived one.
4. Annual company expenses. Accounting fees, equipment, training, business travel. Only relevant outside IR35: an inside-IR35 deemed-employment payment cannot deduct these against tax.
5. Pension contribution and director salary. The Optimise toggle picks the higher of the £5,000 Secondary Threshold or the £12,570 Personal Allowance, whichever produces more take-home in your specific situation.

The headline cards show outside-IR35 take-home, inside-IR35 take-home and the delta. The blue panel below converts the outside-IR35 number into the FTE-equivalent gross salary a permanent role would have to pay to match it. The stacked bar chart shows where every £100 of revenue goes; the breakdown table itemises corporation tax, employer NI, income tax, employee NI and dividend tax line by line. Hit Export CSV for the underlying numbers.

For the broader picture of personal vs company structure, run the sole trader vs Ltd calculator alongside it.

Worked example: a £500 a day contractor {#worked-example}

Take a contractor on £500 a day, five days a week, 46 weeks a year. Gross contract revenue: £115,000. Assume no company expenses, no pension contribution, and the optimised director salary on the outside case. Using 2026/27 rates the calculator returns roughly:

• Outside IR35 annual take-home: around £84,000 (split between a small director's salary, dividends after 19% corporation tax, and personal income tax of 8.75% / 33.75% on dividends).
• Inside IR35 annual take-home: around £65,000 (PAYE income tax, employee NI, and a 15% employer NI hit on the assignment rate before income tax even starts).
• Delta: roughly £19,000 a year in lost take-home.

That gap is not the contractor "dodging" tax. It is the structural difference between (a) corporation tax plus dividend tax, and (b) PAYE plus employee NI plus employer NI. Employer NI is the biggest single mover, because inside IR35 it gets deducted from the contract rate before income tax is calculated. Even the FTE-equivalent figure tells you something useful: to match the outside-IR35 net of around £84,000, a permanent PAYE role would need to pay roughly £125,000 gross, before you account for employer pension contributions, holiday or sick pay.

Run the inside-IR35 number through the take-home pay calculator and you will see it nets close to a permanent £115,000 salary with no benefits. That is the honest comparison for anyone weighing up whether to stay contracting or take a permanent role.

The CEST tool and how to read its verdicts {#cest-tool}

HMRC's Check Employment Status for Tax (CEST) tool is the only official IR35 assessment HMRC publishes. The client (or the contractor, if the client is small) answers a sequence of questions about substitution, control, financial risk and working pattern, and CEST returns one of three buckets:

• Outside IR35. HMRC has publicly said it will stand by a CEST outside-IR35 result as long as the inputs were accurate and the working practices match. This is the most useful outcome and worth printing and filing.
• Inside IR35. HMRC will treat the contract as employment for tax. The fee payer applies PAYE and employee NI, and the employer NI hit comes out of the assignment rate.
• Unable to determine. CEST refuses to give an answer on a meaningful share of cases. This is supposed to push you to take advice; in practice many clients just default to inside.

CEST has been criticised since launch for under-weighting Mutuality of Obligation (MoO), for producing different outputs from very similar inputs, and for failing to reflect the case law that has gone through the First-tier Tribunal. It is the only "official" tool, but it is not the final word, and tribunal judges are not bound by it. Treat a CEST output as one input alongside a specialist contract review from a recognised IR35 specialist (firms such as QDOS and Bauer and Cottrell are examples; we do not endorse any particular provider).

If your client has run CEST and produced an inside-IR35 Status Determination Statement (SDS) you disagree with, you have 45 days to invoke the client-led status disagreement process. The client then has 45 days to respond. Many large clients refuse to engage substantively because the financial risk of changing the call sits on them.

The status tests that actually matter {#status-tests}

The case law that decides IR35 disputes turns on a small number of factors. Get these right in the contract and in the day-to-day working practices, and you have a defensible outside-IR35 position. Get them wrong in practice and the contract wording will not save you.

• Substitution. Can you send a qualified substitute to do the work in your place, with the client paying you (not the substitute)? An unfettered right of substitution is the single strongest pointer to outside-IR35 status. The right has to be genuine, not theoretical: if every clause that sounds like substitution has a veto attached, HMRC will treat it as a sham.
• Control. Does the client direct what you do, how you do it, when and where? Employees are controlled; genuine contractors are engaged to produce a defined output. Being told what to deliver is fine; being told how to deliver it is an employment marker.
• Mutuality of obligation (MoO). Is the client obliged to offer ongoing work and are you obliged to accept it? In a true contractor relationship the engagement ends when the project ends, with no expectation of more. Rolling, open-ended extensions look like employment.
• Supervision, direction and control (SDC). Used as the gateway for the agency-worker rules, but also relevant here. If a senior employee at the client is supervising your daily output the way they would supervise a junior, that is an SDC failure and it pulls you inside.

Secondary factors include who provides equipment, exclusivity, financial risk (do you bear the cost of fixing defects in your own time?), integration into the client team, and how long the engagement has been running. A genuine Statement of Work with deliverables, milestones and acceptance criteria carries more weight than a time-and-materials contract for the same activity, but only if the day-to-day reality matches.

For the structural side of running a Ltd company alongside this, read our guide on the SA302 HMRC form (the document mortgage lenders ask for) and the self-employed mortgage guide for how lenders read contractor income. The UK pensions explainer covers the employer pension contributions that make the outside-IR35 route materially more efficient than salary alone.

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