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.
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What does outside IR35 mean?
If your contract is outside IR35, HMRC considers you a genuine business rather than a disguised employee. This means you can operate through a limited company and pay yourself via a mix of salary and dividends, which is typically much more tax-efficient than being taxed as an employee.
How outside IR35 pay works
Most contractors outside IR35 follow this structure:
- Invoice through a limited company
- Pay a small salary (usually £12,570 — the personal allowance)
- Pay corporation tax (19%) on remaining profits
- Take remaining profits as dividends (taxed at 8.75%/33.75%/39.35%)
This typically results in a take-home of 75–85% of gross, compared to 55–65% inside IR35.
Inside vs outside IR35: the financial difference
For a contractor on £500/day working 5 days a week for 46 weeks (£115,000 gross):
- Outside IR35: Take-home approximately £86,000–90,000/year
- Inside IR35: Take-home approximately £65,000–70,000/year
That is a difference of £15,000–25,000 per year.
How IR35 status is determined
Three key tests:
- 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?
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Use our Outside IR35 Calculator to estimate your contractor take-home pay.
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Last updated
Last reviewed: 2026-04-12T13:08:32.782Z.