How We Calculate Your IR35 Take-Home Pay

The 2026/27 Tax Rates We Use

Scenario A: Outside IR35 (Limited Company)

1. 1

   We start with your gross contract value: your day rate multiplied by your realistic billable days (we default to 220, not 260).

2. 2

   We calculate the employer National Insurance your company pays on your director salary: 15% on salary above £5,000. At the default £12,570 salary this is £1,135.

3. 3

   We deduct your accountant fees and professional insurance. These are real costs of operating a limited company that most calculators ignore.

4. 4

   The remaining company profit is subject to Corporation Tax: 19% on profits up to £50,000, rising to 25% above £250,000, with marginal relief in between.

5. 5

   The net profit after Corporation Tax is distributed as dividends. The first £500 is tax-free. The remainder is taxed at 10.75% within the basic rate band, 35.75% in the higher rate band, and 39.35% above £125,140.

6. 6

   Your take-home is: director salary + dividends − dividend tax. At a £12,570 salary, no income tax or employee NI is due on the salary itself.

Scenario B: Inside IR35 (Umbrella Company)

1. 1

   The umbrella company deducts its weekly fee (typically £20–35/week) from your assignment rate.

2. 2

   What remains has to cover both your salary and the employment taxes charged on that salary, so we work backwards to find the gross salary it can actually support. Employer National Insurance is charged at 15% on your gross salary above the £5,000 secondary threshold, not on the assignment rate itself.

3. 3

   The apprenticeship levy of 0.5% is charged on your gross salary on the same basis. Only employers with a pay bill above £3 million are liable, but umbrella companies process payroll at a scale that puts almost all of them above that threshold.

4. 4

   Your gross salary plus employer NI, the levy, and the umbrella margin add back up to your full assignment rate. That gross salary is what PAYE income tax and employee NI are calculated on.

5. 5

   Income tax applies at 20% from £12,570 to £50,270, and 40% above that. Your personal allowance starts to taper above £100,000.

6. 6

   Employee NI applies at 8% between £12,570 and £50,270, then 2% above.

The £100,000 Personal Allowance Trap

Between £100,000 and £125,140, your personal allowance is reduced by £1 for every £2 of income above £100,000. This creates an effective marginal tax rate of 60% on income in this band, meaning a pay rise can actually leave you worse off. Salary sacrifice into a pension is the most effective way to bring income below £100,000 and restore your full personal allowance.

Why We Default to 220 Days, Not 260

260 days assumes you work every weekday of the year and never take a sick day, holiday, or gap between contracts. For an inside IR35 contractor, every day off is unpaid. We default to 220 days (260 minus 8 bank holidays, 20 days annual leave, 5 sick days, and 7 days between contracts). You can adjust this in the calculator.