IR35 Inside vs Outside Take-Home Pay 2026: Worked Examples at GBP 400 and GBP 600 Per Day

How IR35 Affects Your Take-Home Pay

IR35 legislation was introduced to combat disguised employment -- situations where a worker operates through a limited company but works like an employee. When a contract is caught by IR35, the worker must pay tax and National Insurance as if they were employed directly.

Since April 2021, the responsibility for determining IR35 status shifted to medium and large private sector organisations. This change affected hundreds of thousands of contractors and continues to shape the contracting market in 2026.

The key financial difference is straightforward: inside IR35, you pay both employee NI (8% on GBP 12,570 to GBP 50,270, then 2% above) and employer NI (13.8% above the Secondary Threshold), which is deducted from the contract fee before your net pay is calculated. Outside IR35, operating through a Personal Service Company (PSC), you extract funds via salary and dividends, avoiding NI on the dividend portion.

Worked Example: GBP 400 Per Day

Assumptions: 220 working days, daily rate GBP 400, annual billing GBP 88,000.

Inside IR35 (PAYE):

• Gross contract value: GBP 88,000
• Employer NI at 13.8% (on earnings above GBP 9,100) deducted before net pay: approx GBP 10,912
• Gross salary received: approx GBP 77,088
• Employee NI (8% on GBP 12,570-GBP 50,270; 2% above): approx GBP 3,341
• Income Tax (Personal Allowance GBP 12,570; Basic rate 20% to GBP 50,270; Higher 40% above): approx GBP 17,000
• Take-home: approximately GBP 56,700 (around 64%)

Outside IR35 (PSC, salary GBP 12,570 + dividends):

• Company revenue: GBP 88,000
• Salary GBP 12,570 -- no NI if sole director without Employment Allowance
• Corporation Tax at 19% (small profits rate) on GBP 75,430 profit minus salary cost: approx GBP 14,331
• Net profit after CT available as dividends: approx GBP 61,099
• Dividend tax on GBP 61,099 (GBP 500 allowance, then 8.75% basic rate on remainder): approx GBP 5,296
• Take-home: approximately GBP 68,373 (around 78%)

Worked Example: GBP 600 Per Day

Annual billing at GBP 600/day for 220 days: GBP 132,000.

Inside IR35 (PAYE):

• Employer NI deducted from fee: approx GBP 16,957
• Gross salary: approx GBP 115,043
• Income Tax (higher and additional rate kicking in): approx GBP 36,800
• Employee NI: approx GBP 4,146
• Take-home: approximately GBP 74,097 (around 56%)

Outside IR35 (PSC):

• Corporation Tax on GBP 119,430 taxable profits: GBP 28,695 (25% main rate applies above GBP 250,000 profits threshold -- small companies rate still applies here)
• Net after CT: approx GBP 90,735 available as dividends
• Dividend tax (some at Higher rate 33.75%): approx GBP 17,100
• Take-home: approximately GBP 86,205 (around 65%)

Note: these are illustrative figures. Actual take-home depends on allowable expenses, accountancy costs, pension contributions, and the specific tax year figures.

What to Consider When Evaluating a Contract

The financial comparison is important, but not the only factor. Inside IR35 contracts may offer:

• Employment-like protections in some cases
• Simpler administration -- no company accounts to file
• Predictable net pay without quarterly CT bills

Outside IR35 contracts offer greater take-home but require running a limited company, paying for accountancy, and managing quarterly tax payments. If status is uncertain, a formal IR35 assessment from a specialist contractor tax adviser is strongly recommended before accepting any engagement.