Inside vs outside IR35 calculator
Same day rate, two very different outcomes. This compares annual take-home inside IR35 through an umbrella against working outside through your own company on a small salary and dividends.
Where the money splits
Inside IR35, the contract usually runs through an umbrella company. The assignment rate is not your salary. First it has to fund the employer’s National Insurance and the apprenticeship levy, because the umbrella becomes your employer. What is left is your gross pay, and only then do your own income tax and employee National Insurance come off. That two-layer deduction is why the inside figure comes out where it does.
Outside IR35, you invoice through your own limited company. A common setup is a director’s salary at the personal allowance, so no income tax and almost no NI on it, with the remaining fee left in the company. The company pays corporation tax on that profit, and the after-tax amount is paid to you as dividends, taxed at the lower dividend rates with a £500 allowance. Fewer layers of NI and lower headline rates on dividends are what open the gap. The limitation is that you cannot choose your status: it follows the real nature of the work.
Worked example
A £500 day rate over 220 days is a £110,000 contract. Inside, roughly £14,091 goes on employer NI and the levy before your gross salary is set, and after your own tax and NI you keep about £66,185. Outside, the company pays £22,069 corporation tax, you draw £75,361 in dividends on top of the £12,570 salary, pay £17,463 dividend tax, and keep about £70,468. The difference is £4,284.
Common questions
What is the difference between inside and outside IR35?
Inside IR35 means the contract is treated like employment, so the money is taxed through PAYE, usually via an umbrella company. Outside IR35 means you are genuinely running a business through your own company, so you can take a small salary and pay the rest as dividends. The status is about the working arrangement, not a choice you make freely.
Why is inside IR35 take-home lower?
Two reasons. Inside an umbrella, the assignment rate first has to cover employer National Insurance and the apprenticeship levy before it becomes your gross salary, then your own tax and NI come off. Outside, a small salary plus dividends avoids most employee NI and dividends are taxed at lower rates, though the company pays corporation tax first.
Is this a guaranteed way to pay less tax outside IR35?
No. You cannot simply choose to be outside IR35. Whether a contract is inside or outside depends on the actual working relationship, and the client or agency usually makes the determination. Trying to sit outside on a contract that is really inside carries real risk. Treat the gap here as the potential saving, not as permission to claim outside status.
What does the outside figure assume?
A director salary at the £12,570 personal allowance, with the rest of the fee kept in the company, taxed at corporation tax, and paid out as dividends. Dividends use the £500 allowance and the 8.75% and 33.75% rates. It ignores pension contributions, expenses, VAT and the cost of running the company, all of which change the real number.
Does inside IR35 give me any employment rights?
Being inside IR35 for tax does not automatically give you full employment rights from the end client. Through an umbrella you become the umbrella’s employee, which brings statutory rights like holiday pay and sick pay, funded from your assignment rate. It is worth separating the tax question from the rights question.