Your gross day rate is not what you take home. UK contractors face Income Tax, National Insurance, pension, and — critically — the IR35 question that determines whether you are taxed as an employee or as a business owner. This guide converts common day rates to net take-home under both scenarios and explains the trade-offs between umbrella company and limited company contracting.
Standard formula:
Day rate × 220 working days = Annual gross revenue
(220 = 52 weeks × 5 days − 8 bank holidays − 12 holiday days average. Adjust for your actual working pattern.)
| Day rate | Annual (220d) | Outside IR35 Ltd (~) | Inside IR35 / umbrella (~) | Annual advantage (outside) |
|---|---|---|---|---|
| £300/day | £66,000 | £46,200/yr | £40,800/yr | +£5,400 |
| £400/day | £88,000 | £61,600/yr | £53,500/yr | +£8,100 |
| £500/day | £110,000 | £75,900/yr | £65,200/yr | +£10,700 |
| £600/day | £132,000 | £88,600/yr | £76,300/yr | +£12,300 |
| £700/day | £154,000 | £101,800/yr | £87,000/yr | +£14,800 |
| £800/day | £176,000 | £115,000/yr | £97,700/yr | +£17,300 |
| £1000/day | £220,000 | £141,000/yr | £118,500/yr | +£22,500 |
Estimates only. Outside IR35 assumes salary £12,570 + dividends, no pension. Inside IR35 assumes umbrella with employer NI passed through. Individual circumstances vary significantly. Use the take-home pay calculator for your exact numbers.
IR35 (also called the off-payroll working rules) exists to ensure contractors who are effectively employees pay similar taxes to permanent employees. Since April 2021, medium and large private sector clients determine your IR35 status — not you.
Substitution
Can you send a substitute to do the work, and would the client accept them? A genuine right of substitution points strongly to outside IR35.
Control
Does the client dictate how, when and where you work? The more the client controls the manner of your work (not just the outcome), the more likely you are inside IR35.
Mutuality of Obligation (MOO)
Is the client obliged to offer you work, and are you obliged to accept it? A genuine contractor has no MOO — each project is discrete.
Use HMRC’s CEST (Check Employment Status for Tax) tool to get an indication. A CEST determination is not legally binding but HMRC will stand behind its output if used correctly.
| Factor | Umbrella company | Limited company (PSC) |
|---|---|---|
| IR35 status | Only option inside IR35 | Optimal for outside IR35 |
| Employer NI (13.8%) | Deducted from your gross rate | You pay only if salary > £9,100 |
| Take-home retention | ~55–60% of day rate revenue | ~65–70% outside IR35 |
| Admin burden | None — umbrella handles all | Company accounts + CT return + payroll |
| Employment rights | Yes (SSP, SMP, pension auto-enrolment) | No (as director/shareholder) |
| Expenses claims | Very limited post-2016 | Broad allowable expenses |
| Flexibility | Immediate start, easy to stop | Setup ~1 week, dissolution takes months |
| Setup cost | £15–£30/week margin | £100–£200/yr accountant + Companies House |
| Best for | Inside IR35 / short contracts / new starters | Outside IR35 / 6+ month engagements |