IR35 Calculator | Compare Inside vs Outside IR35 Pay

IR35 Tax Calculator

Essential IR35 Information

Inside IR35

  • Treated as an employee for tax purposes
  • PAYE and NICs deducted at source
  • Limited expense claims
  • Umbrella company option available

Outside IR35

  • Operate as a genuine business
  • Tax-efficient salary/dividend mix
  • Legitimate expense claims
  • Greater financial flexibility

Inside IR35

Outside IR35

Income Comparison Graph

Frequently Asked Questions

What exactly is IR35?

IR35 is tax legislation designed to combat tax avoidance through 'disguised employment'. It ensures that contractors working like employees but through their limited companies pay similar taxes to regular employees. The rules apply to contractors who would be employees if they were providing their services directly to the client.

How do I know if I'm inside or outside IR35?

Key factors determining IR35 status include:

  • Control: How much say the client has over your work
  • Substitution: Whether you can send someone else to do the work
  • Mutuality of Obligation: Whether the client must offer work and you must accept it
  • Financial Risk: Whether you take on business risks
Who determines my IR35 status?

For public sector and medium/large private sector clients, the client determines your IR35 status. For small private sector clients, you (the contractor) determine your status. The client is considered small if they meet two or more of these criteria: annual turnover ≤ £10.2m, balance sheet total ≤ £5.1m, ≤50 employees.

What are the tax implications of being inside IR35?

Inside IR35, you'll pay:

  • Income Tax through PAYE
  • Employee National Insurance Contributions
  • Employer's NICs (usually paid by the fee-payer)
  • No ability to claim the same range of expenses
Can I claim expenses if I'm inside IR35?

Inside IR35, your expense claims are limited. You can typically claim:

  • 5% of gross income for running your limited company
  • Pension contributions
  • Professional subscriptions
  • Some travel and accommodation (subject to restrictions)
How often are IR35 determinations reviewed?

IR35 status should be assessed for each individual contract. Best practice is to review your status:

  • When starting a new contract
  • If contract terms change
  • When extending or renewing contracts
  • If working practices change

IR35 Calculator: Understanding Your Contract Income and Tax Implications

What is IR35 and Why Does It Matter?

IR35, also known as the off-payroll working rules, is crucial legislation that affects contractors, freelancers, and consultants working through their limited companies. Introduced in 2000 and significantly reformed in 2021, these regulations determine whether a contractor should be treated as an employee (inside IR35) or a genuine business (outside IR35) for tax purposes.

Inside vs Outside IR35: The Financial Impact

Understanding the financial implications of IR35 status is vital for contractors. Inside IR35 typically results in higher tax payments and reduced take-home pay, as contractors must pay similar taxes to permanent employees. Outside IR35 contractors can benefit from tax-efficient company structures, though they must ensure genuine self-employment status.

Key Factors Affecting Your IR35 Status

  • Control and Direction: How much autonomy you have over your work methods and schedule
  • Substitution: Whether you can send someone else to complete the work
  • Mutuality of Obligation: The extent of ongoing work expectations
  • Financial Risk: Your exposure to business costs and liabilities

Tax Considerations for Contractors

Contractors must navigate various tax elements including Income Tax, National Insurance Contributions (NICs), Corporation Tax, and dividend taxation. Inside IR35, contractors face PAYE and NICs deductions at source. Outside IR35 contractors can optimize their tax position through salary-dividend combinations, though recent dividend tax increases have impacted this strategy.

Using the IR35 Calculator

Our comprehensive IR35 Calculator helps contractors understand their potential take-home pay under both inside and outside IR35 scenarios. It considers current tax rates, allowances, and thresholds to provide accurate comparisons. Key features include:

  • Real-time calculations based on your day rate
  • Detailed breakdown of tax deductions
  • Comparison of inside vs outside IR35 scenarios
  • Updated tax rates for 2023/24

Making Informed Contract Decisions

When evaluating contract opportunities, understanding the financial implications of IR35 status is crucial. Contractors should consider both immediate income impact and long-term business sustainability. Factors to consider include:

  • Contract rate negotiations
  • Business expense deductions
  • Professional insurance requirements
  • Pension contributions

IR35 Reform and Future Implications

Recent IR35 reforms have shifted determination responsibility to medium and large private sector clients. This change has significantly impacted the contracting landscape, making it crucial for contractors to understand their position and plan accordingly. Stay informed about legislative changes and maintain clear evidence of your working practices.

Calculate Your Contract Income Today

Use our calculator below to understand your potential earnings under different IR35 scenarios. Make informed decisions about your contracting career with accurate, up-to-date calculations based on current tax legislation.

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