Hundred SummersContractor take-home: inside vs outside IR35
Your take-home pay on a day rate inside IR35 through an umbrella company and outside IR35 through your own limited company, line by line, with a permanent salary alongside if you want one. Your figures never leave your browser.
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Worked example
Computed when this page was built by the same engine that runs the calculator above, so the figures below and the live tool can never disagree. Change any input above to see your own.
| Inputs | |
|---|---|
| Day rate | £500 |
| Days a year | 220 |
| Umbrella margin | £20 a week |
| Company running costs | £1,500 a year |
| Results | |
|---|---|
| Inside IR35 (umbrella), you keep | £65,650 |
| Outside IR35 (own company), you keep | £69,224 |
| Difference a year | £3,573 |
| Per day, inside / outside | £298 / £315 |
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Inside IR35: an umbrella company
When a contract is inside IR35 you are taxed much like an employee. Most contractors are paid through an umbrella company: the agency pays it your full rate, and out of that come the umbrella's margin, employer National Insurance (15% above £5,000 a year) and usually the 0.5% apprenticeship levy, before what is left is paid to you as salary through PAYE. That is why an inside-IR35 day rate takes home much less than the same salary would.
Outside IR35: your own limited company
Outside IR35, your company invoices the client. It pays you a small salary (here £12,570, the personal allowance), pays corporation tax on its profit (19% up to £50,000, 25% from £250,000, with marginal relief between) and pays the rest to you as dividends, taxed at 10.75%, 35.75% or 39.35% above the £500 allowance. A company whose only employee paid above the threshold is its director can't claim the Employment Allowance against employer NI.
The comparison with a permanent job isn't like for like: a salary comes with paid holiday, sick pay, an employer pension and no gaps between contracts, all of which a day rate has to cover.