Management Consultant IR35 & Tax UK 2026/27: £600/Day Worked Comparison

Why consultancy work sits right on the IR35 line

Management consultancy is unusually exposed to IR35 risk because the work itself can look identical whether it's structured as genuine outsourced project delivery or as disguised employment. A consultant hired to "review our operating model and recommend a restructuring plan by Q3" is doing outcome-based work — the client cares about the deliverable, not which hours you keep. A consultant hired to "join the transformation team, attend daily stand-ups and pick up whatever the programme lead assigns" is, in substance, doing the same job as an employee on the team, just invoiced differently.

The tests HMRC and tribunals actually apply come down to a handful of practical questions:

• Deliverables vs tasks: Are you contracted to produce a defined output (a report, a redesigned process, a completed programme phase) for a fixed or milestone-linked fee, or are you simply allocated day-to-day work by a client manager?
• Control: Does the client dictate how you do the work — your hours, your methodology, your location — or only what the end result should be?
• Substitution: Could you, in principle, send another qualified consultant from your firm to deliver the same engagement?
• Integration: Are you listed in the internal org chart, given a company email address, invited to all-staff meetings, and treated indistinguishably from permanent staff?
• Equipment and expenses: Do you use your own laptop and bear your own costs of getting the job done, or does the client supply everything?

Worked example: £600/day, 220 days, £132,000 revenue

We'll use the standard contractor baseline: £600/day across 220 working days a year (accounting for holiday and gaps between engagements).

Outside IR35 — limited company route

• Annual revenue: £132,000.
• Salary: £12,570 (uses the full Personal Allowance, no Income Tax).
• Employer NI on salary above £5,000: (£12,570 − £5,000) × 15% = £1,136.
• Business expenses (insurance, accountancy, laptop, subscriptions, training): £6,500.
• Profit before Corporation Tax: £132,000 − £12,570 − £1,136 − £6,500 = £111,794.
• This falls within the marginal relief band (£50,000-£250,000), giving an effective Corporation Tax rate of roughly 23.5% for this profit level: £26,272.
• Profit available for dividends: £111,794 − £26,272 = £85,522.

Dividend tax:

• Dividend allowance: £500 tax-free.
• Taxable dividends: £85,522 − £500 = £85,022.
  • Within basic rate band (£37,700 remaining after salary uses the Personal Allowance) at 8.75%: £37,700 × 8.75% = £3,299.
  • Above basic rate band (£47,322 remaining) at 33.75%: £47,322 × 33.75% = £15,971.
  • Total dividend tax: £19,270.

Outside IR35 take-home:

• Salary net: £12,570.
• Dividends net: £85,522 − £19,270 = £66,252.
• Total take-home: £78,822 (~£6,569/month).

Inside IR35 — umbrella company route

• Revenue into umbrella: £132,000.
• Employer NI: (£132,000 − £5,000) × 15% = £19,050.
• Employer pension (3% minimum): £132,000 × 3% = £3,960.
• Umbrella fee (~£25/week): £1,300.
• Gross deemed salary for PAYE: £132,000 − £19,050 − £3,960 − £1,300 = £107,690.

PAYE on £107,690:

• Personal Allowance tapers above £100,000 — reduced by £1 for every £2 over, so at £107,690 the allowance falls to £12,570 − (£7,690 ÷ 2) = £8,725.
• Taxable income: £107,690 − £8,725 = £98,965.
  • Basic rate (£37,700) × 20% = £7,540.
  • Higher rate (£61,265) × 40% = £24,506.
  • Total Income Tax: £32,046.
• Employee NI: 8% on £37,700 = £3,016, plus 2% on the remaining £69,990 = £1,400. Total NI: £4,416.

Inside IR35 take-home:

• Deemed salary: £107,690.
• Less Income Tax: £32,046.
• Less employee NI: £4,416.
• Liquid take-home: £71,228 (~£5,936/month).

Side-by-side comparison

Outside IR35 figures improve further with employer pension contributions, which are a deductible company expense and avoid dividend tax entirely — many consultants close the gap to £13,000-£15,000 in practice by directing part of company profit into a pension rather than dividends.

Reading the client's Status Determination Statement

For engagements with a medium or large end client, you should receive a Status Determination Statement (SDS) before the contract starts, setting out the client's IR35 conclusion and reasoning. If you disagree — for example, the SDS says "inside" but your actual working pattern is genuinely deliverable-based with no client control over your hours or methods — you have the right to challenge it through the client's status disagreement process, and the client must respond within 45 days. Keep your own record of how the engagement actually runs (emails setting deliverables rather than tasks, invoices tied to milestones, evidence you used your own equipment) — this is what tips a contested determination in your favour.

Structuring contracts to reflect genuine outside-IR35 working

If you're negotiating a new consultancy engagement and want a defensible outside-IR35 position, push for terms that match how you actually intend to work:

• A statement of work with defined deliverables and milestones, not an open-ended "provide consultancy services as directed" clause.
• A genuine (even if unused) right of substitution — the client should not be able to insist on you personally.
• No fixed reporting line into a client manager who allocates day-to-day tasks; instead, a named client sponsor who reviews deliverables against the agreed scope.
• Freedom to use your own equipment and methodology, and to determine your own working hours around agreed milestones.
• A fee structure tied to outputs (fixed price per phase, or a day rate capped by a total project fee) rather than open-ended time billing that mirrors an employee's timesheet.

Filing and paying

If outside IR35, your limited company pays Corporation Tax on its taxable profit (returns filed within 12 months of the accounting period end, tax paid within 9 months and 1 day) and you report salary and dividends on your personal Self Assessment by 31 January following the tax year. If inside IR35, the umbrella or fee-payer deducts tax and NI at source through PAYE, so there's typically no further Self Assessment liability on that income unless you have other untaxed income to declare.