UK IR35 Deemed Payment Calculator 2026/27

IR35 deemed payment for 2026/27 under Chapter 8 ITEPA, for PSCs inside IR35 with small clients - 5% deduction, expenses, salary and employer NIC.

Business & Company (LTD)

Run the Chapter 8 ITEPA 2003 deemed-payment calculation for a Personal Service Company inside IR35 - the year-end computation that still applies when your PSC determines its own status for an engagement with a small private-sector client or a client wholly outside the UK. Covers the 5% deduction, allowable expenses, salary already drawn, and the employer NIC on the deemed payment, following the steps in ITEPA 2003 Part 2 Chapter 8 (section 54) and the HMRC Employment Status Manual (ESM8000).

Worked scenarios for 2026/27

£70k contract, no salary drawn

£44,475 take-home

Deemed £58,478 - Er NIC £8,022
£100k contract, £12,570 salary

£59,227 take-home

Deemed £71,343 - Er NIC £11,087
£100k contract, £20k pension routed via PSC

£49,140 take-home

Deemed £53,952 - Er NIC £8,478
£150k contract, £12,570 salary

£78,152 take-home

Deemed £112,647 - Er NIC £17,283
£200k contract, additional-rate territory

£100,043 take-home

Deemed £153,952 - Er NIC £23,478

What the IR35 deemed payment is

The IR35 deemed payment is the year-end calculation that a Personal Service Company (PSC) makes when an engagement is inside IR35 and the PSC itself is responsible for deciding status. It is set out in Chapter 8 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003, the original IR35 regime that started in April 2000 (the nickname comes from the Inland Revenue press release number that announced it).

The PSC is treated as paying the worker a “deemed payment” on the last day of the tax year, 5 April. Income Tax and Class 1 National Insurance are due on it under the normal PAYE rules, by 19 April (22 April if paid electronically) (HMRC ESM8250).

When Chapter 8 applies vs Chapter 10 off-payroll working

Chapter 8 (the deemed-payment route - this calculator)

Chapter 8 applies when the PSC decides whether the engagement is inside IR35. Since the April 2017 and April 2021 reforms that is the case for engagements with a small client outside the public sector, or a client wholly outside the UK (no UK residence or permanent establishment) (HMRC ESM10006).

A company client is medium or large, and so outside Chapter 8, if it meets two or more of these for two consecutive financial years. For financial years beginning on or after 6 April 2025 (HMRC ESM10006a; Companies Act 2006 s.382):

turnover of more than £15 million
balance sheet total of more than £7.5 million
more than 50 employees

For earlier financial years the turnover and balance sheet limits were £10.2 million and £5.1 million. HMRC says the earliest tax year the new limits can affect a client is 2027/28, so for 2026/27 engagements the £10.2 million and £5.1 million limits still decide whether the client is small.

Chapter 10 (off-payroll working - separate calculator)

Chapter 10 applies when the client is medium or large (private and voluntary sector, since April 2021) or a public authority (since April 2017). Then the client - and whoever pays the PSC’s fee (the “fee-payer”, often an agency) - is responsible for:

The client issuing a Status Determination Statement (SDS) to the worker and the party it contracts with.
If the SDS says inside IR35, the fee-payer deducting Income Tax and employee Class 1 National Insurance before paying the PSC.
The fee-payer paying employer National Insurance, and Apprenticeship Levy if it applies to it.

The PSC receives a payment that has already been taxed and does no deemed-payment calculation. Off-payroll cases are modelled by our Contractor calculator instead, using the inside-IR35 mode.

If you are not sure about status, HMRC’s Check Employment Status for Tax (CEST) tool gives HMRC’s view. HMRC says it will stand by the result as long as the information you give is accurate and in line with its guidance.

The eight-step deemed-payment calculation

ITEPA 2003 s.54 sets out the calculation in eight steps. The calculator above runs them automatically; here they are in the order of the legislation.

Step 1 - income from the engagements, less 5%

Take the total payments and benefits the PSC received in the tax year for the inside-IR35 engagements, excluding VAT, and reduce it by 5%. HMRC describes the 5% as covering unspecified expenses such as the running costs of the company; it is given automatically, whatever was actually spent. If the PSC uses the VAT flat rate scheme, use the gross amount less the flat rate VAT payable, so the flat rate surplus is included (HMRC ESM8175).

Step 2 - add payments from others

Add payments and benefits the worker received from anyone other than the PSC for the engagements that are not already taxed as employment income but would be if the worker were the client’s employee.

Step 3 - deduct employee-type expenses

Deduct expenses the PSC met that the worker could have deducted as an employee of the client. These include:

Travel and subsistence under the employee rules, including travel to a temporary workplace. For this purpose the engagements are treated as a single continuing employment with the PSC (s.54(6)).
Mileage allowance relief where the PSC provides a vehicle, at the approved mileage rates (55p a mile for the first 10,000 business miles in a car, then 25p) (s.54(4)).
Professional subscriptions to bodies on HMRC’s approved list.

Step 4 - deduct capital allowances

Deduct capital allowances the worker could have claimed as an employee on plant and machinery the PSC bought.

Step 5 - deduct pension contributions

Deduct contributions the PSC made for the worker to a registered pension scheme. This is often the largest deduction.

Step 6 - deduct employer National Insurance already paid

Deduct the employer National Insurance the PSC paid for the year for the worker - for example on salary. At 2026/27 rates employer NI is 15% above the £5,000 secondary threshold, so a £12,570 salary carries £1,136 of employer NI.

Step 7 - deduct salary and benefits already paid

Deduct the salary and taxable benefits the PSC already paid the worker in the year. These have been through PAYE already, so they are not taxed twice.

Step 8 - take off employer NI on the deemed payment

What remains is treated as the deemed payment plus the employer National Insurance on it, so the employer NI is taken off:

pot = deemed + max(0, deemed - secondary threshold) x employer NIC rate
deemed = (pot + secondary threshold x employer NIC rate) / (1 + employer NIC rate)

At 2026/27 rates a £95,000 pot gives a deemed payment of £83,261, with £11,739 of employer NI on it. The result is the deemed payment, taxed as employment income with Income Tax and employee National Insurance. If the deemed payment would be below the secondary threshold there is no employer NI on it.

The calculator combines the steps into: 5% deduction, “allowable expenses” (steps 3 and 4), employer pension contributions (step 5), salary drawn (step 7) and employer NI (steps 6 and 8). It does not model step 2.

How much the deemed payment takes

On £100,000 of fees with no expenses, pension or salary, the deemed payment is £83,261. Income Tax, employee National Insurance and employer National Insurance together come to about 36% of the fees, leaving the worker about £58,849 after tax (Income Tax bands for England, Wales and Northern Ireland).

Things that have moved the comparison with other routes in recent years include the cuts to employee Class 1 National Insurance in January and April 2024, the rise in employer National Insurance and fall in the secondary threshold from April 2025, the Corporation Tax marginal band since April 2023, and the dividend tax rates for 2026/27. Whether it is still worth keeping a PSC for inside-IR35 work - rather than working through an umbrella company or taking a direct role - depends on the mix of your engagements, pension plans and costs; an accountant can compare the options for your figures.

Status determination - the underlying tests

Whether an engagement is inside or outside IR35 turns on the same tests as any employed-versus-self-employed question. The framework comes from the Ready Mixed Concrete case (1968); HMRC treats the Supreme Court’s 2024 PGMOL judgment as the leading authority on its first stage (HMRC ESM0543):

Personal service and mutuality of obligation - the worker agrees to provide their own work in return for pay. This can exist within a single engagement even without any obligation to offer or accept more work. A genuine, workable right to send a substitute points against employment.
Control - whether the client has a sufficient right to control how, when and where the work is done.
The wider picture - if both are present, the other terms and the working arrangements are weighed: financial risk, equipment, the chance to profit from managing the work well, and whether the worker is part and parcel of the client’s organisation.

Penalties for getting it wrong

Where HMRC finds that a Chapter 8 engagement was inside IR35 after the PSC treated it as outside, it can recover:

The tax and National Insurance on the deemed payments for the years concerned. HMRC can normally go back 4 years, 6 years for careless errors and 20 years for deliberate ones.
Interest at HMRC’s late payment rate, Bank Rate plus 4 percentage points.
Penalties for inaccuracies under Finance Act 2007 Sch 24: up to 30% of the lost tax for careless errors, 70% for deliberate ones and 100% for deliberate and concealed ones, with reductions for telling HMRC and helping put things right.

Keep the contract, a note of the actual working practices, any CEST result and correspondence with the client confirming how the work is done.

Contractor calculator - inside vs outside IR35 take-home for a day-rate contract, including the Chapter 10 off-payroll path.
Corporation Tax calculator - the small / marginal / main-rate structure post-April 2023.
Self-employed tax calculator - the alternative trading vehicle if you wind up the PSC.
Capital Allowances calculator - allowances on equipment used in engagements.
IR35 explained guide - longer-form background on the status tests and case law.
Sole Trader vs Limited Company 2026/27 - comparing the two routes.

Sources verified 2026-10-01:

ITEPA 2003 s.54 - legislation.gov.uk
HMRC Employment Status Manual, Chapter 8 (ESM8000) - gov.uk
Understanding off-payroll working (IR35) - gov.uk
Check Employment Status for Tax (CEST) - gov.uk

Other UK tax calculators that pair with the IR35 Deemed Payment.

Cite or embed - free under CC BY 4.0

Frequently asked questions

When does the Chapter 8 deemed payment apply, not the off-payroll working rules?

The Chapter 8 deemed-payment calculation applies where the PSC itself decides whether an engagement is inside IR35: engagements with a small client outside the public sector, or with a client wholly outside the UK (HMRC ESM10006). A company client is medium or large if it meets two or more of these for two consecutive financial years: for financial years beginning on or after 6 April 2025, turnover over £15 million, balance sheet total over £7.5 million, more than 50 employees; before that, £10.2 million and £5.1 million (HMRC ESM10006a). HMRC says the earliest tax year the new limits can affect a client is 2027/28, so for 2026/27 engagements the £10.2 million and £5.1 million limits still decide whether the client is small. For medium and large clients (since April 2021) and all public-sector clients (since April 2017), the Chapter 10 off-payroll rules apply instead: the client decides status and the fee-payer deducts tax and National Insurance, so there is no deemed-payment calculation by the PSC.

What is the 5% standard allowance?

Step 1 of the calculation in ITEPA 2003 s.54 reduces the PSC's income from the relevant engagements by a flat 5%. HMRC describes it as covering unspecified expenses such as the running costs of the company; it is given automatically, whatever the PSC actually spent, and only in working out the deemed payment (HMRC ESM8175). It is part of every Chapter 8 calculation. It does not exist under Chapter 10, which uses a different calculation. The toggle in the calculator lets you see the figure without it for comparison only.

Which expenses can the PSC deduct in the deemed-payment computation?

Only the items in ITEPA 2003 s.54, not the general business-expense rules: (1) expenses the worker could have deducted as an employee of the client, which include travel to a temporary workplace, professional subscriptions on HMRC's approved list and mileage allowance relief; (2) capital allowances an employee could have claimed; (3) PSC contributions for the worker to a registered pension scheme; and (4) the employer National Insurance the PSC has paid. Salary and benefits already paid to the worker are then deducted. General overheads are not deducted separately; the flat 5% is intended to cover them.

Why is employer NIC added on top of the deemed payment?

The deemed payment is earnings for National Insurance, so employer Class 1 National Insurance is due on it, and that cost has to come out of the same pot. The last step of s.54 therefore treats what is left as the deemed payment plus the employer NI on it: pot = deemed payment + (deemed payment - secondary threshold) x employer rate. The calculator solves this for you. At 2026/27 rates (15% above a £5,000 secondary threshold), £100,000 of fees with no expenses or salary gives a deemed payment of £83,261, and Income Tax plus employee and employer National Insurance take about 36% of the fees.

How does drawing a salary during the year change the deemed payment?

Salary and benefits the PSC paid the worker during the year are deducted in working out the deemed payment, and the employer National Insurance on them is deducted too. They have already been taxed through PAYE, so they are not taxed twice. Paying salary through the year moves tax from the year-end deemed payment into the monthly payroll; the total is broadly similar, but HMRC is paid through the year rather than in one amount. Some PSCs pay a salary around the Personal Allowance (£12,570) and leave the rest to the deemed payment.

When is the deemed payment due to HMRC?

The deemed payment is treated as paid on the last day of the tax year, 5 April (or earlier in some cases). The tax and National Insurance on it are due under the normal PAYE rules for the last tax month, by 19 April (22 April if paid electronically). HMRC accepts a provisional payment where the exact figure is not yet known, with the final figure reported later (HMRC ESM8250). Late payment interest is charged at Bank Rate plus 4 percentage points, and late payment penalties can also apply.

Does the deemed payment count as Corporation Tax deductible expenditure?

Yes. The PSC can deduct the deemed payment, and the employer National Insurance on it, in working out its profits for Corporation Tax for the period in which the deemed payment is treated as made (Corporation Tax Act 2009 s.139). Because the calculation is designed to pay out the engagement income after the permitted deductions, a PSC whose only work is inside IR35 is often left with little taxable profit; any profit that remains is taxed at the normal Corporation Tax rates.