Inside vs Outside IR35: Side-by-Side Take-home
Inside vs outside IR35 take-home in 2026/27 at £350-£800 a day, assuming the inside rate also covers employer NI.
Take-home across day rates (2026/27)
Both columns start from the same assignment rate over 220 working days, with England, Wales and Northern Ireland Income Tax bands.
- Outside IR35: the company pays £2,500 a year in running costs and a £12,570 director salary with employer National Insurance on it (£1,136, as a sole-director company cannot claim Employment Allowance), pays Corporation Tax on the rest, and pays out everything left as dividends.
- Inside IR35: to compare like with like, the model holds the fee-payer's total cost at the assignment rate, so employer National Insurance (15% above £5,000) comes out of it; the remainder is the worker's deemed employment income, taxed under PAYE with employee NI. That is a pricing assumption, as in an umbrella arrangement. Under the Chapter 10 rules for public-sector, medium and large clients HMRC says employer NI cannot be deducted from the deemed direct payment and is paid on top (HMRC fee-payer guidance); where the full rate is paid to your company that way, the inside figure is higher than shown. Under Chapter 8 (small private-sector clients) the law does take employer NI out of the deemed employment payment (ITEPA 2003 s.54, step 8).
- Not modelled: umbrella margin and Apprenticeship Levy (both would lower the inside figure).
| Day rate | Assignment fees (220d) | Outside IR35 | Inside IR35 | Outside ahead by |
|---|---|---|---|---|
| £350/day | £77,000 | £53,168 | £49,771 | £3,397 |
| £400/day | £88,000 | £58,362 | £55,318 | £3,044 |
| £500/day | £110,000 | £68,751 | £66,414 | £2,338 |
| £600/day | £132,000 | £78,819 | £74,423 | £4,396 |
| £700/day | £154,000 | £85,570 | £83,106 | £2,464 |
| £800/day | £176,000 | £93,952 | £93,245 | £707 |
Why the gap is not steady
Outside IR35 the £12,570 director salary uses the Personal Allowance, and the rest of the profit is paid as dividends after Corporation Tax, at 10.75% in the basic band, 35.75% in the higher band and 39.35% in the additional band. The basic and higher dividend rates rose by 2 percentage points from April 2026.
Inside IR35 the whole rate is employment income, but employer NI is paid out of it first, so at 15% the worker's deemed pay is only about 87% of the rate above the £5,000 secondary threshold. That is the main reason outside IR35 stays ahead at these rates.
At the margin the order can flip. An extra pound of fees inside IR35, taxed at the 40% higher rate plus 2% employee NI after employer NI, leaves about 50p. Outside IR35, an extra pound of profit in the marginal-relief band (26.5% Corporation Tax) paid out as a higher-rate dividend leaves about 47p. That is why the advantage shrinks towards £800 a day. Around £100,000 of income the Personal Allowance taper adds a further twist on both sides, which is why the gap is not a smooth line.
When inside IR35 can make more sense
- Short or one-off engagements, where the cost and time of forming and running a company (accounts, Corporation Tax returns, payroll) can outweigh a gap of a few thousand pounds.
- Engagements that look like employment. Status turns on the working arrangements, not on what the contract calls them; where the client is small and your own company decides status, getting it wrong leaves the tax and NI that should have been paid to be settled later.
- Contractors who want to be employed. An umbrella company is the worker's employer and runs PAYE, which some contractors prefer to running a company of their own.
Related
Frequently asked questions
What is the take-home difference between inside and outside IR35?
On our model, at day rates from £350 to £800 over 220 days, outside IR35 nets about £700-£4,400 more a year than inside IR35 at the same assignment rate. Inside IR35 the model holds the fee-payer's total cost at that rate, so employer National Insurance comes out of it; under the Chapter 10 rules for public-sector, medium and large clients HMRC says the fee-payer pays employer NI on top of the deemed direct payment, which would raise the inside figure. Outside, the company pays Corporation Tax, and employer NI on the director salary (no Employment Allowance), and the director takes dividends. Not modelled: umbrella margin, and the 0.5% Apprenticeship Levy where the employer's pay bill exceeds £3 million and it is passed on; both would reduce the inside figure.
Who decides IR35 status?
Under the off-payroll working rules (changed from 6 April 2021), the client usually decides the worker's employment status for tax and must give a status determination statement (SDS) with its reasons. Where the client is a small business outside the public sector, the worker's own intermediary (normally their limited company) decides instead. HMRC's CEST tool is offered to help make the determination.
Does inside IR35 mean I have to use an umbrella?
Not necessarily. Where the client or agency is the fee-payer, it deducts Income Tax and employee National Insurance from the fees it pays to the worker's intermediary and pays employer NI, so the contractor can keep their limited company. Many inside-IR35 contracts are instead run through an umbrella company, which employs the contractor and operates PAYE on their pay.
What is the Corporation Tax marginal rate effect?
The small profits rate is 19% on profits up to £50,000 and the main rate is 25% on profits above £250,000. In between, marginal relief applies, so each extra pound of profit in that band is taxed at 26.5%. The average rate on the whole profit stays between 19% and 25%. The limits are shared between associated companies and reduced for short accounting periods.
Is outside IR35 still worth the hassle?
The gap is smaller than the figures often quoted. On our model it is about £3,000 a year at £400 a day and £2,300 at £500, and it shrinks towards the top of the range (£700 at £800) because profit in the marginal-relief band paid out as higher-rate dividends keeps less of each extra pound than higher-rate employment income does. Running a company also costs time and fees, which the model includes only as a flat £2,500 a year.