Inside vs Outside IR35 Calculator, 2026/27

How this is calculated

When a contract is inside IR35, the fee-payer, usually an agency or umbrella company, must first deduct employer National Insurance from the contract value before treating the remainder as a deemed direct payment. Income tax and employee NIC are then applied to that deemed payment in the same way as ordinary salary, with no scope to extract profit as dividends.

When a contract is genuinely outside IR35 and run through a personal limited company, the contract value can be reduced by legitimate business expenses, a director salary is set (here at the 2026/27 personal allowance), corporation tax is applied to the remaining profit, and the balance is distributed as dividends taxed at the lower dividend rates. This structural difference, deducting employer NIC from the whole contract value inside IR35 versus splitting income between salary and dividends outside it, is the main driver of the gap shown.

Why the gap can be large

Inside IR35, employer NIC is deducted from the contract value before you see any of it, effectively meaning the contractor bears a cost that would normally fall on an employer, on top of employee NIC and income tax on the remainder. Outside IR35, dividends carry no NIC at all, and much less income sits in the higher tax bands because it is split between a modest salary and dividends rather than being taxed as one large deemed salary payment.

The size of the gap grows with the contract value, since more income is pushed into higher tax bands inside IR35, while the outside IR35 dividend structure keeps a larger share taxed at the lower dividend ordinary rate.

Determining your actual status

IR35 status is not a choice, it depends on the real working practices of the engagement, including control, substitution rights and mutuality of obligation, assessed either by you (for a small end client) or by the end client itself (for a medium or large one) under the off-payroll working rules. Getting this wrong carries risk: HMRC can challenge an outside IR35 determination and seek the tax and NIC that should have been deducted, sometimes going back several years.

Always keep a written status determination statement and the reasoning behind it, and review the determination if the working practices of the contract change materially during its term.

Who decides if my contract is inside or outside IR35?

For contracts with medium or large private sector clients, and all public sector clients, the end client makes the determination. For contracts with genuinely small private sector clients, the contractor's own limited company is still responsible for assessing status.

Can I still claim expenses if I am inside IR35?

Generally no, other than a very limited set such as pension contributions and some travel costs; most business expenses that would be deductible outside IR35 cannot be claimed against a deemed direct payment.

Does being inside IR35 mean I become an employee?

No, it means you are taxed broadly as if you were an employee for that engagement, but you do not gain employment rights such as redundancy pay, holiday pay or the right to claim unfair dismissal from the end client.

What happens if HMRC disagrees with an outside IR35 determination?

HMRC can open an enquiry and, if it successfully challenges the determination, seek the additional tax and National Insurance that should have been deducted, potentially with interest and penalties, so keeping clear supporting evidence for the determination matters.