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The setup: what we're comparing

Three scenarios are compared across each day rate.

Outside IR35 via Ltd Co

You operate through your own limited company, pay yourself a low salary (we use £12,570, the personal allowance threshold), and take remaining profit as dividends. You claim business expenses. You pay employer's NI only on your salary component, not your dividends.

Inside IR35 via umbrella

The umbrella receives your day rate, deducts employer's NI (15% on earnings above the secondary threshold from April 2026), deducts their weekly margin, then pays you as an employee with income tax and employee's NI deducted at source.

Inside IR35 with salary sacrifice pension

The same as umbrella, but with a meaningful employer pension contribution made before tax, reducing the NI and income tax base. For each scenario we use 220 billable days, £1,500/year accountant fees for Ltd Co, £350/year professional insurance for Ltd Co, and £25/week umbrella margin.

Why 220 days and not 260

Most contractor calculators use 260 days — 52 weeks at 5 days. That assumes you work every weekday of the year with no holidays, no sick days, and no bench time between contracts.

The realistic figure for a UK contractor is 210–230 billable days. We use 220 as the default. The difference matters: at £500/day, moving from 260 days to 220 days reduces gross annual income from £130,000 to £110,000. Every comparison built on 260 days is systematically overstating your outside IR35 earnings.

The numbers

£400/day — £88,000 gross on 220 days

Gap between outside and inside: £12,600/year — £1,050/month

£500/day — £110,000 gross on 220 days

Gap between outside and inside: £15,800/year — £1,317/month

£650/day — £143,000 gross on 220 days

Gap between outside and inside: £19,700/year — £1,642/month

£800/day — £176,000 gross on 220 days

Gap between outside and inside: £21,500/year — £1,792/month

These are illustrative figures. Your exact numbers depend on your expenses, salary level, pension contributions, and specific umbrella arrangement. Use the IR35 Verdict calculator for figures based on your actual inputs.

Why the gap is so large

The inside IR35 disadvantage compounds across several layers simultaneously.

Employer's NI — the invisible tax

When you're inside IR35 via umbrella, your day rate absorbs employer's National Insurance — currently 15% on earnings above the £5,000/year secondary threshold from April 2026. You're effectively paying both employer's and employee's NI on nearly your entire day rate.

No dividend route

Outside IR35, you can take a significant portion of income as dividends, taxed at 8.75% basic rate rather than 20–40% income tax plus NI. Inside IR35, everything goes through payroll.

No expense relief

Ltd Co contractors can claim genuine business expenses against corporation tax. Umbrella contractors are heavily restricted following HMRC's tightening of expense rules in 2016.

Umbrella margin

Typically £20–40 per week — £1,000–2,000 per year — before any other calculation.

What the salary sacrifice pension changes

Large employer pension contributions before tax reduce your NI-able and taxable earnings, creating genuine tax efficiency even inside IR35. At £500/day with a 10% employer contribution, you give up around £3,200 in annual take-home but accumulate £11,000 in pension. For contractors who are inside IR35 and want to maximise total compensation, this is worth modelling properly.

One thing the numbers don't capture

These figures show take-home pay. They don't show IR35 risk. A contractor who is genuinely outside IR35 — solid contract, working practices that match, real substitution rights — and takes the outside route is in a sound position. A contractor taking the outside numbers but actually working like an employee is carrying liability that doesn't appear in any take-home comparison.

Before using these numbers to choose a role, check whether an outside determination is defensible for the specific contract. The contract checker gives you a probability assessment against the six dimensions tribunals use.

Frequently asked questions

How much less do you take home inside IR35?

At typical contractor day rates the gap is £12,000–£22,000 per year in take-home pay, depending on your rate. At £500/day the difference is approximately £15,800/year or £1,317/month between outside IR35 via Ltd Co and inside IR35 via umbrella.

Why do most IR35 calculators give different figures?

Most calculators use 260 working days per year — 52 weeks at 5 days — which assumes zero holidays, zero sick days, and no bench time between contracts. IR35 Verdict defaults to 220 billable days, which is more realistic for most UK contractors.

What is the outside rate equivalent to an inside umbrella offer?

The multiplier is typically 1.25–1.35x. An inside rate of £500/day generally requires an outside equivalent of approximately £625–£675/day to produce the same net take-home pay after all deductions.

Can I claim expenses if I'm inside IR35 via umbrella?

Very few expenses are claimable for umbrella contractors following HMRC's 2016 changes. You cannot claim travel to a regular workplace, and most day-to-day working costs are not allowable. Ltd Co contractors outside IR35 have significantly more flexibility.

Does a salary sacrifice pension help if I'm inside IR35?

Yes, meaningfully. Large employer pension contributions made through your umbrella before tax reduce your NI and income tax base. At £500/day with a 10% employer contribution, you accumulate approximately £11,000 in pension annually while reducing your tax burden — narrowing the gap with outside IR35 total compensation.

Sources and further reading

• —HMRC: Off-payroll working rules (IR35)
• —HMRC: Expenses if you're self-employed
• —HMRC: Tax on dividends
• —HMRC: National Insurance rates and thresholds
• —IR35 Verdict calculator — see your exact figures based on your day rate and inputs