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The setup: what we're comparing

Three scenarios are compared across each day rate. Every figure below is produced by the IR35 Verdict calculator using the assumptions stated in this section, so you can reproduce any of them yourself.

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 pay employer's NI only on your salary component, not your dividends. We deduct £1,500 a year in accountant fees and £350 a year in professional insurance, because these are real costs of running a company that most comparisons leave out.

Inside IR35 via umbrella

The umbrella receives your assignment rate and has to cover your salary, the employment taxes charged on that salary, and its own margin. Employer's National Insurance at 15% above the £5,000 secondary threshold and the 0.5% apprenticeship levy are both charged on your gross salary, not on the headline assignment rate. We use a £25 per week margin, charged per week worked rather than per calendar week, which is 44 weeks on a 220-day year.

Inside IR35 with salary sacrifice pension

The same as umbrella, but with an employer pension contribution made before tax, which reduces income tax, employee NI, employer NI, and the levy. The calculator sizes this automatically to bring your taxable salary down to the £50,270 basic rate ceiling, capped at the £60,000 pension annual allowance.

For each scenario we use 220 billable days, £1,500 a year accountant fees for Ltd Co, £350 a year professional insurance for Ltd Co, and a £25 per 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 to 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. For every rate and formula behind these figures, see our full calculation methodology.

The numbers

£400/day (£88,000 gross on 220 days)

Gap between outside and umbrella: £4,096/year (£341/month)

£500/day (£110,000 gross on 220 days)

Gap between outside and umbrella: £3,438/year (£287/month)

£650/day (£143,000 gross on 220 days)

Gap between outside and umbrella: £4,905/year (£409/month)

£800/day (£176,000 gross on 220 days)

Gap between outside and umbrella: £1,853/year (£154/month)

Two things in the salary sacrifice row are worth explaining, because they look odd at first glance.

The cash figure is identical at £400 and £500 a day. That is not an error. The automatic sacrifice targets the same taxable salary of £50,270 in both cases, so the cash outcome is the same and the entire extra £22,000 of contract value at the higher rate goes into the pension instead.

From about £539 a day upward, the sacrifice hits the £60,000 pension annual allowance and stops absorbing the surplus. Above that rate the excess stays in your salary and is taxed at the higher rate, which is why cash take-home starts climbing again at £650 and £800.

The gap does not grow with your day rate. It peaks at around £600 a day and then falls away sharply, from £4,905 at £650 to £1,853 at £800, and it keeps shrinking above that.

Two effects drive this, both tied to the £100,000 personal allowance taper, which strips the allowance by £1 for every £2 of income and creates a 60% effective marginal band up to £125,140. The umbrella salary enters that band first, at around £550 a day, which is what opens the gap up from its £525 low. Then the limited company follows it in, and once the director's personal income passes £125,140 the allowance is gone entirely, so the whole £12,570 director salary becomes taxable rather than tax free. That costs the outside route £2,514 a year that it does not pay at lower rates, and it is why the advantage narrows to almost nothing at the top of the range.

The practical read: the limited company advantage is at its largest in the middle of the market, roughly £550 to £675 a day. Above about £750 a day it is marginal.

These figures depend on the assumptions listed above. Change your billable days, your umbrella margin, or your accountancy costs and the numbers move. Use the calculator for figures based on your actual inputs.

Why the gap is now so small

The five-figure gaps quoted across the contracting market were real once. They are not real now, and three changes explain most of the compression.

Corporation tax at 25%

The main rate rose from 19% to 25% in April 2023, with marginal relief between £50,000 and £250,000 of profit. On the profits a typical contractor company generates, the effective rate sits in the mid-twenties rather than at 19%. Every pound of company profit is taxed harder before it ever reaches you as a dividend.

Two rounds of dividend tax rises

Dividend tax on the basic rate band rose to 8.75% in April 2022 and again to 10.75% from April 2026. The higher rate band went to 33.75% and then to 35.75%. The dividend allowance, which was £5,000 in 2017, is now £500. The dividend route still beats payroll, but by far less than it used to.

Expenses most contractors cannot actually claim

Comparisons showing a large gap usually assume meaningful business expense claims. Since HMRC tightened the rules in 2016, most contractors working through a single client site cannot claim travel to that site, and day-to-day working costs are largely not allowable. Our figures assume no business expenses beyond accountancy and insurance, because that is the realistic position for most people. A comparison that assumes several thousand pounds of claimable expenses will show a much larger gap, and will be wrong for most readers.

The marginal rate crossover

There is a fourth effect that surprises people. In the higher rate band, an extra pound of contract value is now taxed slightly more heavily outside IR35 than inside it. Outside, that pound passes through corporation tax at a 26.5% marginal rate in the relief band and then dividend tax at 35.75%, leaving 47.2%. Inside via umbrella, it carries employer NI and the levy, then income tax at 40% and employee NI at 2%, leaving 50.2%.

The outside route is still ahead overall, because the low director salary shelters the first slice of income very efficiently. But at the margin the advantage has actually inverted. We are writing this up properly in a separate article, because it has real consequences for rate negotiation.

What the salary sacrifice pension changes

Salary sacrifice does not raise your take-home. It converts take-home into pension at a favourable rate, and inside IR35 that rate is good, because the sacrifice reduces employer NI and the apprenticeship levy as well as your own income tax and NI.

At £500/day, sacrificing £11,000 into a pension costs you £5,524 of annual take-home. That is roughly £1.99 of pension for every £1 of cash given up. The often-quoted figure of "give up £3,200 to gain £11,000" was too good to be true, and we previously published it ourselves.

The more useful way to look at it is how much sacrifice it takes to erase the gap entirely. At £500/day, a sacrifice of about £6,906 a year brings your total compensation inside IR35, cash plus pension, level with the outside IR35 cash figure. At £400/day it takes about £8,229, at £650/day about £7,308, and at £800/day only about £3,425.

This is where the compression of the gap actually matters. A £3,438 gap is a closeable gap. A £15,000 gap was not.

Two honest caveats. First, pension money is locked until you can access it, so this is not a like-for-like swap for spendable cash. Second, a limited company outside IR35 can make employer pension contributions too, and does so slightly more efficiently, at about £2.12 of pension per £1 of take-home given up at the same rate. Salary sacrifice is not a reason to prefer an inside role. It is a reason an inside determination costs far less than the market assumes.

Our salary sacrifice pension guide covers the mechanics, the annual allowance, and the time limit now attached to the strategy.

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.

That risk calculus has shifted too. When the gap was £15,000 a year, some contractors accepted real IR35 exposure to capture it. At £3,438 a year, the same exposure buys a lot less, and a single investigation costs far more than a year of the difference.

For outside IR35 contractors, IR35 insurance covers the cost of defending that position if HMRC investigates.

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?

On 220 billable days with a £25 per week umbrella margin, the gap runs between £1,853 and £4,905 a year across the £400 to £800 per day range. It is widest at £650/day and narrowest at £800/day, where it is £154 a month. The gap does not grow with your day rate; above about £600 a day it shrinks. Figures quoting £12,000 to £22,000 generally assume pre-2023 corporation tax, the older dividend rates, or business expense claims most contractors cannot make.

Why do most IR35 calculators give different figures?

Two reasons. Most use 260 working days per year (52 weeks at 5 days), which assumes zero holidays, zero sick days, and no bench time. Many also charge employer's National Insurance on the full assignment rate rather than on your gross salary, which overstates it, because part of the assignment rate is the tax itself. IR35 Verdict defaults to 220 billable days and grosses up correctly.

What is the inside rate equivalent to an outside offer?

If you were on £500/day outside, you need about £534/day inside via umbrella to hold the same take-home, a multiplier of roughly 1.07x. Across £400 to £800 a day the multiplier runs from 1.02x to 1.09x, falling as the rate rises. It is not a smooth trend, because the personal allowance taper above £100,000 affects the two structures at different day rates.

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 somewhat more flexibility, though the same 2016 restrictions limit travel claims to a single client site.

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

Yes, though not in the way it is usually described. It does not increase your take-home. At £500/day, sacrificing £11,000 costs £5,524 of cash, so you gain about £1.99 of pension per £1 given up. A sacrifice of around £6,906 a year brings total compensation inside IR35 level with outside IR35 cash at that rate.

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