Question 1

What is IR35?

Accepted Answer

IR35 (Intermediaries Legislation) is a set of UK tax rules designed to prevent disguised employment. If HMRC deems your contract "inside IR35", your income is taxed like an employee's (PAYE + NI). If "outside IR35", you can operate through a limited company and take salary + dividends — which is more tax-efficient.

Question 2

How much more do I take home outside IR35?

Accepted Answer

At a typical day rate of £400 for 220 days, outside IR35 can mean around £20,000–£30,000 more take-home pay per year compared to inside IR35, depending on expenses and salary strategy. The higher your day rate, the larger the difference. Use this calculator to see the exact comparison for your rate.

Question 3

What salary should a Ltd company contractor take?

Accepted Answer

The most tax-efficient salary for a contractor's limited company is usually the personal allowance (£12,570), because: (1) it is deductible from corporation tax, (2) no income tax is due on salary within the personal allowance, and (3) employee NI is zero below the primary threshold of £12,570. Employer NI applies on the portion above £9,100 (£520 per year), but this is still net-positive versus corporation tax on that salary.

Question 4

What is corporation tax for a limited company contractor?

Accepted Answer

For the 2026-2027 tax year, the small profits rate is 19% on profits up to £50,000 and the main rate is 25% on profits above £250,000. Between those amounts, marginal relief applies, giving an effective rate that tapers between 19% and 25%.

Question 5

How are dividends taxed in the UK in 2026-2027?

Accepted Answer

The dividend allowance is £500 (dividends up to £500 are tax-free). Above that, dividends are taxed at 8.75% in the basic rate band, 33.75% in the higher rate band (income above £50,270), and 39.35% in the additional rate band (above £125,140). Dividend tax rates are lower than income tax rates, which is why a salary + dividends strategy saves tax.

Question 6

Can I claim expenses as a contractor?

Accepted Answer

Outside IR35 contractors can claim legitimate business expenses through their company (equipment, software, professional subscriptions, accountancy fees, home office costs, travel to client sites). Inside IR35 contractors generally cannot claim expenses against their deemed employment income. This calculator includes an optional expenses field for outside IR35 scenarios.

Question 7

Do I need an accountant as a contractor?

Accepted Answer

Running a limited company involves annual accounts, corporation tax returns, confirmation statements, VAT registration (if turnover exceeds £90,000), and self-assessment. Most contractors use an accountant. Typical contractor accountancy fees are £50–£150 per month. These fees are a legitimate business expense deductible from corporation tax.

Question 8

What is an umbrella company and is it inside or outside IR35?

Accepted Answer

An umbrella company employs you and deducts PAYE tax and NI before paying you. It is effectively the same as inside IR35 — you pay full employment taxes. Some umbrella companies also charge a margin fee (£15–£30/week). The calculator's "inside IR35" tab shows your take-home as if working via an umbrella company (before umbrella fees).

Day Rate	Level	Annual Revenue	Inside IR35 Net	Outside IR35 Net	Saving
£200/day	Junior contractor	£44,000	£35,200	£33,242	−£1,957
£300/day	Mid-level contractor	£66,000	£48,837	£48,946	+£109
£400/day	Senior contractor	£88,000	£61,597	£59,664	−£1,934
£500/day	Principal contractor	£110,000	£72,357	£70,376	−£1,981
£600/day	Specialist / architect	£132,000	£81,118	£81,089	−£29
£800/day	Senior specialist	£176,000	£104,438	£102,054	−£2,383

Contractor Calculator UK 2026-2027

Contractor Take-Home Pay by Day Rate — 2026-2027

How the Outside IR35 Calculation Works

Limited Company Flow

Why It Saves Tax

IR35 Calculator — Common Questions

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