How much less do I take home if I am inside IR35 versus outside?

Full answer

IR35 (the off-payroll rules) decides whether a contractor working through a limited company is really a 'disguised employee'. If your engagement is inside IR35, the income from that contract is treated as employment income: it suffers Income Tax (20%/40%/45%) and employee Class 1 NI (8% on earnings GBP 12,570-50,270, then 2% above). For medium and large clients the fee-payer also accounts for employer NI at 15% above GBP 5,000, which in practice erodes the rate available to you. There is no dividend route on inside-IR35 income. Outside IR35, you control how you extract profit. The common pattern is a low salary (often around the Personal Allowance) plus dividends. Dividends carry a GBP 500 allowance and are taxed at 10.75% (basic), 35.75% (higher) and 39.35% (additional) for 2026/27 - rates that rose two points this year - but you avoid employee and employer NI on the dividend element. Corporation Tax (19% up to GBP 50,000 profit, 25% above GBP 250,000, with marginal relief between) applies to company profits first. Worked illustration of the gap: on the same headline fee, an inside engagement is taxed almost identically to a salaried employee, while an outside salary-plus-dividend mix avoids NI on the bulk of income, which is where most of the 20-30% net difference comes from. The exact figure depends on your day rate, days worked, expenses and pension contributions - pension contributions are especially valuable inside IR35 because they can be made before tax. Who it affects: limited-company contractors, particularly in IT, engineering and consulting. Status is determined per contract, so you can be inside on one and outside on another. Use a take-home calculator to compare both scenarios for your specific rate.

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