UK Contractor Calculator 2026/27: IR35

How UK contractor take-home works in 2026/27

Your status under the off-payroll working (IR35) rules decides which tax regime applies to your contract income.

Inside IR35

If the client is a public authority or a medium or large private or voluntary sector organisation, Chapter 10 of ITEPA 2003 applies: the client decides your status, and if you are inside, the fee-payer (usually the agency) treats the payment to your company as a deemed direct payment of employment income. It deducts Income Tax and employee NI and pays employer NI of 15% above the secondary threshold (£5,000 a year in 2026/27). The calculator assumes the assignment rate is inclusive of that employer NI (a common commercial arrangement, not a statutory rule - ITEPA s.61Q sets out the deemed payment itself), so your deemed salary is below the headline rate: at £100,000 a year it is £87,609, after £12,391 of employer NI. A fee-payer over the Apprenticeship Levy threshold may also pass on the 0.5% levy.

If the client is small, Chapter 8 (the original IR35 rules) applies instead: your own company decides your status and, if inside, works out a deemed employment payment itself.

Outside IR35 - through your own limited company

Neither chapter applies, and the company is taxed as any other. The common extraction structure, which this calculator models:

1. Director salary at the Personal Allowance (£12,570) - no Income Tax and no employee NI at this level, but the company pays employer NI of £1,136 on it, because a company whose only employee is its sole director cannot claim Employment Allowance (gov.uk).
2. Corporation Tax on the remaining profit: 19% up to £50,000, 25% above £250,000, and Marginal Relief in between, which makes the rate on each extra pound in that band 26.5%.
3. Post-tax profit taken as dividends: the first £500 at the nil rate, then 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% above it.

Sole trader

No company: profits are taxed as Income Tax plus Class 4 NI (6% between the lower and upper profits limits, 2% above) in the year earned. There is no Class 2 to pay at these profits: from 6 April 2024 it is not charged above the Small Profits Threshold.

Worked example: £100,000 of profit through a limited company

£100,000 of profit after business expenses, 2026/27, England:

The same £100,000 inside IR35 gives a deemed salary of £87,609 and take-home of £61,371. As a sole trader on £100,000 of profit, Income Tax and Class 4 NI leave £69,311.

None of these includes accountancy, insurance or other company running costs; enter yours as expenses in the calculator.

Inside versus outside at common day rates

220 working days, 2026/27, England, no expenses, computed by this calculator:

The gap is before company running costs, which fall only on the outside route. The inside vs outside IR35 comparison uses the same inside-IR35 method and deducts an assumed amount of running costs.

The pension route (outside IR35 only)

Your company can pay an employer pension contribution for you:

• It is normally deductible for Corporation Tax.
• There is no Income Tax or NI on it for you or the company.
• It counts towards your £60,000 Annual Allowance, and unused allowance can be carried forward from the previous three tax years.

Worked, using the £100,000 example above: a £40,000 employer contribution cuts Corporation Tax by £10,322 and reduces your take-home by £19,118, so £40,000 reaches your pension for £19,118 of take-home given up.

Inside IR35 you cannot direct your own company’s money into a pension this way, because the income is taxed as employment income before it reaches the company. You can still contribute personally, or through salary sacrifice if your umbrella or agency offers it; salary sacrifice reduces pay before tax and NI.

Status determination - who decides?

Public authorities, and medium or large private and voluntary sector clients: the client decides your status and issues a Status Determination Statement. A private or voluntary sector client is medium or large if it meets two or more of these: turnover over £10.2 million, balance sheet total over £5.1 million, more than 50 employees (gov.uk). For financial years beginning on or after 6 April 2025 the turnover and balance sheet thresholds are £15 million and £7.5 million, and a company changes size only after meeting the test for two consecutive financial years (HMRC ESM10006A).

Small clients: your own company decides, under Chapter 8.

HMRC’s Check Employment Status for Tax (CEST) tool gives a free indicative determination online.

Tests the courts and HMRC look at:

1. Mutuality of obligation: whether the client must offer work and you must accept it.
2. Personal service: whether you must do the work yourself.
3. Control: how far the client controls how, when and where you work.
4. Right of substitution: whether you can genuinely send someone else.
5. In-business factors: financial risk, your own equipment, marketing yourself.

Common mistakes

1. Same role, same client, now through a company: moving from employment to a limited company with nothing else changed is a strong inside indicator.
2. A substitution clause that is not genuine or has never been usable.
3. Being treated like an employee (line management, company email, annual reviews).
4. Mixing personal and business spending through the company, which can create benefit-in-kind charges.
5. An overdrawn director’s loan account: if the loan is still outstanding 9 months after the end of the company’s accounting period, the company pays a charge equal to the dividend upper rate for the tax year the loan was made (CTA 2010 s.455(2)): 35.75% for loans made from 6 April 2026, 33.75% from 6 April 2022 to 5 April 2026, 32.5% before that (s.455). Loans over £10,000 also have benefit-in-kind and NI consequences (gov.uk).

VAT considerations

Flat Rate Scheme: a business that spends little on goods is a “limited cost business” and pays the higher 16.5% flat rate (gov.uk), which removes most of the scheme’s advantage for service contractors.

Standard VAT: registration is compulsory once VAT-taxable turnover goes over £90,000 (gov.uk).

Voluntary registration below the threshold can make sense if your clients are VAT-registered (they reclaim it) and you have input VAT to recover.

If your contracts are consistently inside IR35

A company whose only income is inside-IR35 work has little tax advantage left, and some contractors move to an umbrella company instead:

• No Corporation Tax return or Companies House accounts to file.
• PAYE only, run by the umbrella.
• Pension saving still possible personally or by salary sacrifice.
• You give up the option of a Business Asset Disposal Relief exit on retained profits.

Closing the company - Business Asset Disposal Relief

Business Asset Disposal Relief charges qualifying gains at 18% for disposals from 6 April 2026 (14% from 6 April 2025 to 5 April 2026, 10% before), on up to £1 million of lifetime gains (gov.uk).

On a members’ voluntary liquidation, distributions can be capital rather than income. Illustration with no other income: £200,000 taxed at 18% is £36,000 (before the annual exempt amount and the base cost of your shares); the same £200,000 as a dividend would carry £64,716 of dividend tax. Anti-avoidance rules (the TAAR on phoenixism) can treat a liquidation distribution as income; see the MVL closure guide.

Related calculators and guides

• IR35 Explained - status tests + history
• Inside IR35 meaning guide - what “inside” means in practice
• Sole Trader vs Limited Company 2026/27 - alternative to PSC
• Optimum director salary 2026/27 - optimal salary level for outside-IR35
• Dividend tax calculator - dividend extraction tax
• Pension contribution calculator - employer pension via PSC
• LTD company MVL closure 2026/27 - closing PSC with BADR
• Director pension strategies - SSAS + employer pension routes
• Director loan account - DLA + S455 trap to avoid
• BADR guide - 18% exit relief mechanics
• VAT registration guide - £90k threshold
• VAT Flat Rate Scheme - FRS reality post-LCT
• Class 2 + Class 4 NI 2026/27 - sole trader comparison
• PAYE + RTI new employer guide - if hiring through PSC

Sources

Statutory basis: Income Tax (Earnings and Pensions) Act 2003 Chapter 8 (intermediaries / IR35) and Chapter 10 (off-payroll working), Finance Act 2020 Schedule 1 (extension to medium and large private sector clients from April 2021), Corporation Tax Act 2010 (rates and Marginal Relief). Rates and thresholds read from this site’s 2026/27 ruleset; other figures from the gov.uk and HMRC pages linked above, retrieved 2026-10-01.