IR35 Calculator 2026/27

Calculation runs based on standard HMRC rules.

Deductions are calculated and adjusted accordingly.

Frequently Asked Questions & Detailed Tax Guide

What is IR35 and how does it affect contractors?

IR35 (intermediary relationships legislation) is a set of tax avoidance rules designed to ensure that contractors who work through their own Limited Company (Personal Service Company – PSC) pay standard employment taxes if they are operating as “disguised employees”. If a contract is classified as **”Inside IR35″**, the contractor must pay PAYE tax and National Insurance at source, similar to a regular employee. If a contract is **”Outside IR35″**, the contractor is treated as a genuine business, allowing them to pay themselves more tax-efficiently via dividends.

What are the key tests for IR35 status?

HMRC and courts determine IR35 status based on three primary pillars established in case law:

• Substitution (Personal Service): Can you send a qualified substitute to perform the work in your place? If the client insists on your personal service, this points to employment.
• Control: Does the client dictate how, where, and when you do the work? Genuine businesses have autonomy over their working methods.
• Mutuality of Obligation (MOO): Is the client obligated to offer you ongoing work, and are you obligated to accept it? A lack of MOO indicates a genuine commercial relationship.

Step-by-Step Financial Comparison: Inside vs. Outside IR35

Let’s compare the net cash received from a contract generating £80,000 in gross annual fees:

Scenario A: Outside IR35 (Tax-efficient extraction)

• 1. Pay Director Salary: £12,570 (no tax/NI).
• 2. Corporate Profit: £80,000 – £12,570 = £67,430. Corporation Tax (19%-26.5%): £13,222.
• 3. Net for Dividends: £54,208. Dividend tax: £12,389.
• 4. Net take-home: **£54,389** (68% net retention).

Scenario B: Inside IR35 (PAYE deductions at source)

• 1. Gross fee income: £80,000.
• 2. The agency or umbrella company must deduct employee income tax, NI, and pension before paying you.
• 3. Deduct PAYE Tax and NI (standard rates): approximately £22,000 tax + £4,500 NI.
• 4. Net take-home: **£53,500** (or less if the agency deducts employer NI and apprenticeship levy from your assignment rate, bringing it down to **£46,000**!).

Tax Expert Pro-Tips: CEST Tool and Contract Reviews

David Vance, CTA FCA, recommends: “For medium and large private sector clients, the responsibility for determining your IR35 status lies with the client under the Off-Payroll Working rules. They must issue a ‘Status Determination Statement’ (SDS). If they place you inside IR35 incorrectly, you have a right to appeal. Always run your contract and working arrangements through HMRC’s ‘Check Employment Status for Tax’ (CEST) tool, and keep a portfolio of evidence (e.g. business website, own equipment, multiple clients) to prove you are a genuine business.”

Legislative References

• Income Tax (Earnings and Pensions) Act 2003 – Chapter 8 (IR35) and Chapter 10 (Off-Payroll Working).
• HMRC Employment Status Manual (ESM) – Detailed criteria for employment status tests.