IR35 Calculator UK 2026–27

IR35 was introduced in April 2000 by HMRC to combat "disguised employment" — situations where workers operated through personal service companies to pay less tax than equivalent employees, despite working in a substantively similar way. The rules have been significantly strengthened through the Off-Payroll Working legislation of 2017 (public sector) and 2021 (private sector).

The financial difference between inside and outside IR35 can be substantial. Outside IR35, a contractor operating through a limited company can draw a small salary (minimising NI) and extract remaining post-tax profit as dividends, which are taxed at lower rates than employment income and attract no National Insurance. Inside IR35, the full turnover is treated as employment income, subject to PAYE income tax and both employee and employer National Insurance.

For a contractor with £100,000 turnover, the difference between inside and outside IR35 can be £15,000–£25,000 per year in additional tax, depending on circumstances. This calculator provides a personalised estimate based on your contract revenue, client type, and expenses to illustrate the scale of the difference. You can compare this with your overall take-home pay, how a bonus would be taxed in employment, and your Self Assessment position. If you have a student loan, note that the inside/outside IR35 split affects whether your loan repayments are collected via PAYE or Self Assessment, and whether dividends count toward repayment income.

The key determinants of IR35 status are the three classic employment tests: substitution (can the contractor send a genuine substitute to do the work?), control (does the client control the manner of work, not just the outcome?), and mutuality of obligation (is there an expectation of ongoing work on both sides?). Beyond these, HMRC also considers whether the contractor is in business on their own account — having multiple clients, financial risk, their own equipment, and so on.

HMRC's Check Employment Status for Tax (CEST) tool is available online and provides a determination for a set of questions about working practices. However, CEST has been criticised for not handling all scenarios well, and courts have found that its output can be misleading. Specialist IR35 advice from an employment lawyer or tax adviser is strongly recommended for any contractor whose status is genuinely ambiguous.

Since April 2021, medium and large private sector engagers are responsible for assessing IR35 status and providing a Status Determination Statement to the contractor. The financial liability for incorrect determinations can fall on the end client. Many large clients took a risk-averse approach and blanket-assessed all contractors as inside IR35 — a position that is legally and commercially challengeable where the facts support outside status.

The 5% deemed expenses allowance was introduced alongside IR35 in 2000 to give contractors caught by the rules a flat deduction for the costs of running their intermediary company. For two decades, all inside-IR35 contractors could reduce their deemed salary by 5% before calculating PAYE and NI.

From April 2024, this allowance was abolished for all engagements where the end client is responsible for the IR35 determination — meaning public sector bodies and medium or large private sector companies. The allowance survives only for small private sector clients, where the contractor's intermediary retains responsibility for determining status under the small company exemption (the client must meet at least two of: annual turnover below £10.2m, balance sheet total below £5.1m, and fewer than 50 employees).

This calculator applies the correct treatment based on the client type you select. If you are unsure whether your client qualifies as "small" under the Companies Act definition, the public/large sector calculation is the safer assumption — and the one that applies to the majority of contractor engagements.

If HMRC opens an IR35 enquiry and determines that an engagement should have been classified as inside IR35, the financial consequences can be significant. The contractor or fee-payer (depending on who bears responsibility) must pay the difference between the tax actually paid and the PAYE equivalent, plus interest at the Bank of England base rate plus 2.5%.

HMRC penalties are behaviour-based: no penalty for reasonable care, up to 30% for careless errors, up to 70% for deliberate under-reporting, and up to 100% for deliberate concealment. In practice, most genuine IR35 disputes where the contractor has taken professional advice and maintained good records attract penalties at the lower end or none at all. Many contractors take out specialist IR35 insurance policies that cover investigation defence costs and, in some cases, the resulting tax liability.