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 8.75% within the basic rate band and 33.75% in the higher rate band.

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

   Your gross contract value is subject to employer National Insurance at 15% above the £5,000 secondary threshold. This is deducted from your rate before you see any money.

2. 2

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

3. 3

   The remaining figure is your gross employment income — this is what PAYE income tax and employee NI are calculated on.

4. 4

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

5. 5

   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.