IR35 Calculator: See Your True Take-Home Pay
What's the real financial difference between an 'Inside IR35' and 'Outside IR35' contract? Enter your details for a clear, side-by-side comparison.
Maximize Your Contractor Take-Home Pay
Operating outside IR35 means every unclaimed business expense is money lost. Zenceipt automates receipt and invoice collection, ensuring you have the evidence to maximize deductions and reduce your Corporation Tax bill.
Simplify Expense TrackingUnderstanding Your IR35 Calculation Results
What Does "Inside IR35" Mean for My Pay?
When a contract is deemed "Inside IR35," you are treated as an employee for tax purposes. This means your client or the fee-paying agency is responsible for deducting Income Tax and National Insurance Contributions (NICs) at source, just like a regular employee. The most significant impact is often the deduction of Employer's National Insurance, which is a cost to the employer but is almost always passed on to you by reducing your effective day rate. Our calculator shows this deduction clearly, as it directly reduces the amount of money available to you before your own taxes are even calculated.
How a Limited Company is Taxed "Outside IR35"
Operating "Outside IR35" means you are a genuine business providing a service to a client. You are responsible for your own taxes through your limited company. The process is:
- Gross Revenue: Your company invoices the client for the full day rate.
- Business Expenses: You can deduct legitimate business running costs (like insurance, software, accountancy fees, and travel) from your revenue. This reduces your profit.
- Corporation Tax: Your company pays Corporation Tax on its taxable profits.
- Extracting Funds: You can then pay yourself from the post-tax profits. The most common method is taking a small, tax-efficient director's salary (usually up to the National Insurance threshold) and the rest in dividends.
- Personal Tax: You pay personal tax (Dividend Tax) on the dividends you receive, which have different rates and allowances compared to income tax.
Why are the Take-Home Pay Amounts Different?
The primary difference comes from tax efficiency. An "Outside IR35" limited company structure is generally more tax-efficient because:
- You don't pay Employer's or Employee's National Insurance on dividends.
- You can claim a wider range of business expenses, reducing your Corporation Tax bill.
- Dividend tax rates are currently lower than income tax rates.
IR35 Explained: A Guide for UK Contractors
IR35, also known as the "off-payroll working rules," is legislation designed to combat tax avoidance by contractors who, despite working through their own limited company, would be considered an employee if they were engaged directly by the client.
What are the key factors in determining IR35 status?
- Control: How much say does your client have over how, when, and where you complete your work? The less control, the more likely you are outside IR35.
- Substitution: Do you have a genuine right to send a substitute to do the work in your place? If you do, and the client cannot unreasonably refuse them, this is a strong indicator of being outside IR35.
- Mutuality of Obligation (MOO): Is the client obliged to offer you more work, and are you obliged to accept it? In a genuine business-to-business relationship, there is no such obligation beyond the current project.
Frequently Asked Questions (FAQ) about IR35
Can I be inside IR35 for one client and outside for another?
Absolutely. IR35 status is determined on a contract-by-contract basis. It's perfectly normal to have a mix of inside and outside IR35 contracts simultaneously. Each engagement must be assessed on its own merits.
What expenses can I claim if I am outside IR35?
If you're operating outside IR35, you can claim a wide range of business expenses that are "wholly and exclusively" for business purposes. Common examples include business insurance, accountancy fees, software subscriptions, and relevant training courses. Keeping meticulous records is vital.
What is a 'Statement of Work' and how does it relate to IR35?
A Statement of Work (SoW) defines the scope, deliverables, and timelines for a project. Using a SoW is a strong indicator of an outside IR35 engagement because it focuses on the service being delivered, not the person doing the work, demonstrating a clear business-to-business relationship.
Should I use an umbrella company if my contract is inside IR35?
Many contractors use an umbrella company for inside IR35 contracts. The umbrella company acts as your employer, handling all tax and NI deductions. This simplifies administration and ensures compliance, though it comes with a service fee and fewer claimable expenses.