How the calculation works
For an umbrella (inside IR35) arrangement, your day rate is the assignment rate. The umbrella deducts its margin, employer's National Insurance and the apprenticeship levy to reach your gross salary, then runs PAYE — income tax and employee's National Insurance — on it.
For a limited company (outside IR35), your contract income is company revenue. You take a small director's salary (£12,570 by default, sitting at the personal allowance), the company pays corporation tax on its profit, and the remainder is drawn as dividends — taxed at 8.75% / 33.75% / 39.35% with a £500 allowance.
Frequently asked questions
What is the difference between inside and outside IR35?
Inside IR35 means HMRC treats you like an employee for tax, so you pay income tax and National Insurance through PAYE — usually via an umbrella company. Outside IR35 means you are genuinely self-employed and can work through your own limited company, paying a small salary plus dividends, which is normally more tax-efficient.
Why is outside IR35 usually more tax-efficient?
Dividends are not subject to National Insurance and are taxed at lower rates than employment income (8.75%, 33.75% and 39.35% in 2025/26). Combined with a low director's salary, this typically leaves a contractor with more take-home pay than an equivalent inside-IR35 umbrella arrangement.
How accurate is this calculator?
It uses the rest-of-UK 2025/26 income tax bands, Class 1 National Insurance, the £500 dividend allowance, dividend tax rates and corporation tax with marginal relief. It is a careful estimate for comparison and does not account for student loans, pension contributions, benefits in kind or Scottish income tax bands.
Should I rely on this for tax decisions?
No. These figures are estimates to help you compare options. Always confirm your specific position with a qualified accountant or HMRC before making decisions.