What does IR35
actually cost you?

Most contractors take home 20–30% less inside IR35 versus outside IR35 through a limited company. At a £500/day rate working 220 days, this typically represents £15,000–£25,000 less per year. The exact amount depends on your salary structure, expenses, and pension contributions. Use the Inside vs Outside IR35 tab above to calculate your specific difference.

Two significant changes hit contractors in April 2025. First, employer National Insurance rose from 13.8% to 15%. Second, the secondary threshold (the income level above which employer NI is charged) dropped from £9,100 to just £5,000. Together, these changes increased the cost of being inside IR35 or working through an umbrella company by approximately £1,500–£3,500 per year at typical contractor rates.

From April 2026, the definition of a "small company" is being widened. Companies with turnover up to £15m (previously £10.2m), balance sheet up to £7.5m, and/or up to 50 employees will qualify as small. When your client is a small company, the responsibility for determining IR35 status shifts back to you (the contractor's PSC), rather than the end client. This means more contractors can self-assess their IR35 status again — but also means more responsibility and risk if you get it wrong.

HMRC's Check Employment Status for Tax (CEST) tool is widely criticised by IR35 specialists. It notoriously fails to properly account for Mutuality of Obligation — a key IR35 test that courts and tribunals rely on. CEST has also returned "undetermined" results in up to 21% of cases. Tax courts have ruled against HMRC in cases where CEST gave an inside IR35 result. While HMRC states it stands by CEST results, most specialist IR35 advisers recommend using it alongside an independent contract review.

This calculator uses the official 2025/26 and 2026/27 HMRC tax rates (select tax year in the sidebar). Dividend rates from April 2026 are included for 2026/27. All calculations run in your browser — no data is sent to any server. The results are indicative estimates based on your inputs and assume standard working arrangements. Results may vary if you have other income sources, complex expenses, or unusual salary/dividend splits. Always consult a qualified contractor accountant before making financial decisions.

If you operate outside IR35 through a limited company, IR35 insurance is strongly recommended. HMRC can open enquiries into past tax years — up to 6 years for careless behaviour — meaning you're not protected just because you're currently inside IR35. Policies from providers like Qdos and Kingsbridge start from around £99/year and cover both legal defence costs and any resulting tax liability, typically up to £250,000.

Most contractor accountants recommend a salary of £12,570 per year (matching the personal allowance) if you don't have employees. This avoids employer NI while still counting as a qualifying year for State Pension. If your company has employees (including a co-director paying a salary), you may benefit from the Employment Allowance (£5,000 in 2025/26), which can make a higher salary more tax-efficient. Speak to a contractor accountant to optimise your salary/dividend split.