Key facts
- Outside IR35 lets you pay yourself through your company; inside IR35 taxes you like employment at source
- Inside IR35 typically cuts take-home by around 20 to 25% with no employment rights in return
- Public sector and medium or large private clients decide status and issue a Status Determination Statement
- Small private clients leave the decision to your own company if they meet two of three size tests
This guide assumes you know the basics, which our IR35 explained guide guide covers in full, including the company-size thresholds.
| Factor | Outside IR35 | Inside IR35 |
|---|---|---|
| Tax status | Treated as a business | Treated as employed for tax |
| How you are paid | Salary plus dividends from your company | Taxed like employment income at source |
| Take-home on a typical contract | Higher | Lower, often 20 to 25% less |
| Who usually decides | You and your accountant for small private clients | The client if it is public sector or a medium or large business |
| Employment rights | None | None, despite being taxed as employed |
The exact take-home gap depends on day rate, expenses and pension. Source: WhatsUK, June 2026.
Who decides your IR35 status depends on the client. Public sector clients, and medium or large private-sector clients, must assess each contract and issue a Status Determination Statement. Only small private-sector clients leave the decision to your own company. A business counts as small if it meets two of three tests: turnover not over £15 million, balance sheet not over £7.5 million, and not more than 50 employees. Because size is judged on prior years, these 2025 threshold rises do not change who decides until 6 April 2027 at the earliest.
IR35 status checklist: what HMRC weighs
- Control: does the client direct how, when and where you work, like an employee?
- Substitution: can you send a qualified substitute in your place?
- Mutuality of obligation: is the client obliged to offer work and you to accept it?
- Part and parcel: are you integrated into the client like a staff member, with a pass, a manager and a desk?
- Financial risk: do you provide your own equipment and carry the risk of fixing errors at your own cost?
Outside IR35 points to genuine independence: a right of substitution, no obligation to offer or accept ongoing work, your own equipment and financial risk.
Compare the two ways of trading in limited company vs sole trader guide, and estimate your figures with the contractor take home calculator.
What inside IR35 means for your pay
Inside IR35, your contract income is treated as deemed employment income. Income tax and employee National Insurance are deducted at source before you receive payment, and you cannot take dividends or retain profit in the company in the usual way. On an illustrative £100,000 contract, take-home is often around £52,000 compared with roughly £70,000 outside IR35, though the exact gap depends on your rate, expenses and pension.
Umbrella companies and disguised remuneration
Some contractors use umbrella companies when inside IR35. Be cautious of umbrella companies offering unusually high take-home pay through loan schemes or other arrangements. HMRC has aggressively pursued these as disguised remuneration and contractors can face large personal tax bills even years later.What outside IR35 means for your pay
Outside IR35, you operate through a personal service company and can structure income tax-efficiently, typically with a modest salary and the remainder as dividends. Corporation tax applies to company profits first, then dividend tax on amounts you withdraw. The structure remains more tax-efficient than inside IR35 for most contractors, even after the 2026/27 dividend rate changes.
IR35 Calculator: Inside vs Outside Comparison
Enter your day rate, working pattern, and IR35 status to see your exact take-home pay inside vs outside IR35, with a full tax breakdown and comparison chart.
Practical steps to protect your status
Get a contract review. Have an IR35 specialist solicitor review your contract before signing. Key clauses to check: substitution rights, control provisions, and termination notice.
Practise what you contract. HMRC looks at the actual working arrangement, not just the contract. If you work from the client site every day, are managed by their line manager, and have a company email address, you may be inside IR35 regardless of what the contract says.
Diversify your client base. Working with multiple clients simultaneously strengthens your case for genuine business operation. A contractor with one client for three years looks much more like a disguised employee than one juggling three concurrent projects.
IR35 insurance
Consider IR35 insurance (also called tax investigation insurance or professional indemnity cover with IR35 extension). Premiums are typically £200 to £600 per year and can cover legal costs and tax defence if HMRC opens an investigation. Given the stakes, this is generally considered good value for higher-earning contractors.Related Calculators
Frequently Asked Questions
Outside IR35 means you trade as a genuine business and can pay yourself tax-efficiently through your company. Inside IR35 means HMRC treats you as employed for tax, so income tax and National Insurance come off at source. Inside status usually cuts take-home by around 20 to 25%, with no employment rights in exchange.
Inside IR35, your contract income is taxed like a salary, with income tax and National Insurance deducted before you receive it. You lose the ability to take dividends or retain profit in the company, so take-home typically falls by around 20 to 25% compared with an equivalent outside-IR35 contract at the same rate.
It comes down to how you actually work. Outside IR35 points include a genuine right to send a substitute, no obligation on either side to offer or accept ongoing work, providing your own equipment and carrying financial risk. If you look and operate like an employee of the client, the contract is likely inside IR35.
For public sector clients and medium or large private-sector clients, the client decides and issues a Status Determination Statement. Only small private-sector clients leave the decision to your own company. A client is small if it meets two of three tests on turnover, balance sheet total and employee numbers.
It is possible but harder to demonstrate, because working for a single client for a long period can look like employment. Status is judged on the working practices, not the number of clients alone. A clear right of substitution, lack of mutual obligation and genuine financial risk all help support an outside-IR35 position.
It is the written decision a public sector or medium or large private-sector client must give, stating whether a contract is inside or outside IR35 and why. You can dispute it, and if the client does not take reasonable care in making it, the tax liability can stay with the client rather than passing down the chain.
No, and this is the common frustration. Inside IR35 affects only how you are taxed, not your employment status in law, so you are taxed like an employee but receive no holiday pay, sick pay or pension from the client. Some contractors negotiate a higher rate to offset an inside-IR35 determination.
It can still be worthwhile if the rate is high enough to offset the extra tax, or if you value the work and stability. The key is to compare the real take-home rather than the headline rate. Many contractors ask for a higher day rate on inside-IR35 roles to make up for the lower net pay.
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James Hartley is a Chartered Management Accountant (CIMA) with more than eight years of experience in UK tax, payroll and compliance. He holds a BSc in Finance and Economics from the University of Manchester and spent his early career at a Big 4 accounting firm. He founded WhatsUK to build free UK financial calculators and guides verified against official HMRC sources. He authors every calculator and article on WhatsUK.
Sources & Official References
- HMRC IR35 - Off-Payroll Working Rules- Official IR35 guidance and determination rules
- HMRC Check Employment Status for Tax (CEST)- HMRC's free online status determination tool
- HMRC Dividend Tax Rates 2026/27- Current dividend tax rates affecting outside IR35 take-home
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.