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About the Inside IR35 Take Home Calculator
What Is IR35?
IR35 determines whether a contractor through a limited company is genuinely self-employed (outside IR35) or effectively an employee (inside IR35).
Inside vs Outside IR35
Inside: Taxed as employee — income tax, employee NI, plus employer NI on fees. Take-home typically 15-25% lower.
Outside: Operate as a business — tax-efficient salary + dividends, expenses, Corporation Tax.
Status Determination
Since April 2021, medium/large clients determine status. Key factors: Control, Substitution, Mutuality of Obligation.
Financial Impact
On £500/day (~£110,000/year equivalent):
- Outside IR35: ~£80,000-£85,000 net
- Inside IR35: ~£65,000-£70,000 net
The £15,000+ difference is primarily employer NI (13.8%).
Your Options Inside IR35
- Work through an umbrella company
- Agency operates PAYE
- Negotiate 15-20% higher rate
Navigating IR35 in Practice
IR35 legislation has evolved significantly since its introduction in 2000. Understanding how it works in practice is essential for maximising your income as a contractor.
The CEST Tool and Its Limitations
HMRC's Check Employment Status for Tax (CEST) tool provides a free online assessment of IR35 status. However, it has been criticised for not accounting for Mutuality of Obligation — a key legal test. Many tax professionals recommend getting independent IR35 insurance or a specialist review alongside CEST results. If HMRC's determination differs from CEST, having documented evidence of your working practices becomes crucial.
Negotiating Rates Inside IR35
When a contract is determined as inside IR35, you should negotiate a higher day rate to compensate for the additional tax burden. A common formula is to increase your outside-IR35 rate by 15-20%. For example, if your outside rate was £400/day, request £460-£480/day inside IR35. Present this as a simple cost-of-compliance adjustment — clients understand that their IR35 determination carries financial consequences for the contractor.
Record-Keeping for IR35 Defence
Whether inside or outside IR35, maintain detailed records of your working arrangements: right to substitution clauses in contracts, evidence of providing your own equipment, examples of control over how, when, and where you work, and proof of providing services to multiple clients. These records are essential if HMRC ever challenges your status determination, and the burden of proof falls on the party making the determination.
Frequently Asked Questions
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