Inside IR35 Explained: What UK Contractors Need to Know
A clear guide to working inside IR35, how it affects your take-home pay, and what it means for your contract.
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What is IR35?
IR35 is UK tax legislation designed to identify contractors who work like employees but operate through their own limited company or an umbrella company. If your engagement is “inside IR35”, you are taxed similarly to an employee.
Inside vs outside IR35
| Factor | Inside IR35 | Outside IR35 |
|---|---|---|
| Tax treatment | PAYE-style deductions | Corporation tax + dividends |
| Employer’s NI | Deducted from your gross | Not applicable |
| Take-home (approx.) | 55–65% of gross | 75–85% of gross |
| IR35 determination | End client decides (public/medium+) | End client decides |
| Holiday/sick pay | Depends on umbrella | Self-funded |
How inside IR35 pay works
When inside IR35, your gross contract value has employer’s NI (13.8%) and apprenticeship levy (0.5%) deducted first. The remainder becomes your “deemed salary” which is then taxed like normal PAYE employment — with income tax and employee NI deductions.
The financial impact
The main cost of being inside IR35 is employer’s National Insurance. On a £500/day contract, this can reduce your take-home by £15,000–20,000 per year compared to outside IR35.
Umbrella companies
Most inside IR35 contractors work through an umbrella company which handles payroll. Umbrella fees typically range from £15–40 per month. Some umbrella companies may deduct additional charges — always check the fee structure carefully.
Who decides IR35 status?
Since April 2021, medium and large private sector clients (and all public sector clients) are responsible for determining IR35 status. The determination should be based on the actual working practices, not just the contract wording.
Key factors in IR35 determination
- Control: Does the client control how, when, and where you work?
- Substitution: Can you send a substitute to do the work?
- Mutuality of obligation: Is there an ongoing obligation to provide and accept work?
Try the calculator
Use our Inside IR35 Calculator to estimate your take-home pay at any day rate.
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Related calculators
- Inside IR35 Calculator — Enter your day rate to see your estimated inside IR35 take-home pay after employer’s NI, income tax, employee NI, and umbrella fees.
- Take-Home Pay Calculator — Enter your salary to see a breakdown of income tax, National Insurance, pension contributions, and student loan repayments — and what you ac
- Day Rate Calculator — Enter your annual salary, hourly rate, or target income to calculate your equivalent day rate — or convert a day rate back to an annual figu
- Overtime Calculator — Enter your base rate, overtime hours, and multiplier to see your gross overtime pay — and optionally estimate the tax and NI on your extra e
- Holiday Entitlement Calculator — Full-time UK workers are entitled to at least 28 days (5.6 weeks) of paid holiday per year including bank holidays. Part-time and irregular
- Holiday Accrual Calculator — Enter your annual entitlement and leave year dates to see how many days you have accrued so far and how many remain.
Related guides
- How Holiday Accrual Is Calculated in the UK — Learn how holiday builds up over a leave year and how to check how much you have accrued so far.
- How Holiday Entitlement Works in the UK — A practical guide to understanding your statutory holiday entitlement as a UK worker, covering full-time, part-time, and irregular working patterns.
- How Overtime Pay Works in the UK — Understand your overtime pay rights, how it is taxed, and how different multipliers affect your earnings.
- How Payroll Deductions Work in the UK — Understand what comes out of your pay: income tax, National Insurance, pension, and student loan deductions explained.
- How to Calculate Your Freelance Day Rate — A practical guide to setting your day rate as a freelancer or contractor, including salary equivalence and market benchmarks.
- Outside IR35 Explained for UK Contractors — What outside IR35 means, how it affects your take-home pay, and the key differences between inside and outside IR35.
Last updated
Last reviewed: 2026-04-12T11:32:25.479Z.