Contractor Salary Calculator 2026/27 — Inside vs Outside IR35
Compare your contractor take-home pay for 2026/27 between inside IR35 (umbrella PAYE) and outside IR35 (Limited Company with dividend extraction), using your day rate, contract days and allowable expenses. See also the Locum Doctor Salary Calculator and the Overseas Workdays Relief guide. Useful if you search for “contractor take home pay inside IR35”, “Ltd vs umbrella calculator 2026” or “contractor dividend tax”.
Updated for the 2026/27 tax year (Corporation Tax ~25%; dividend allowance £500).
The rate you charge the client (inside or outside IR35).
~220 days ≈ standard annual contract with holiday gaps.
Your engager decides your IR35 status for most medium/large clients.
Outside IR35: low salary + dividends. We apply ~25% Corporation Tax on profit.
Inside IR35: paid via PAYE after employer NI (~15%) and weekly margin.
Estimated take-home per year
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Monthly £0|Effective rate 0%
Gross £0
Where the money goes
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take home
How contractors calculate their real take-home pay
The headline day rate looks great — but what you actually bank each month depends on your working structure and how efficiently you route income through your business. A £500/day contract (220 days ≈ £110k gross) can deliver anywhere from £65k to £90k net depending on your choices.
Understanding IR35 in real terms
IR35 is not a tax band — it's a status determination that decides who pays employer National Insurance. Inside IR35, the client treats you like payroll and roughly 15% of your invoice value disappears before you see a penny. Outside IR35, your Ltd company becomes the engine: you control salary level, dividend timing, expense claims, and pension funding — all of which reshape your personal tax exposure.
What changes from 2026/27
Corporation Tax now sits at 25% for most contracting companies (the small-profits rate only applies below £50k). The dividend allowance has shrunk to £500, meaning almost all dividends are taxed at 8.75% (basic rate) or 33.75% (higher rate). Employer NI is 15%, and the secondary threshold means employers' NI kicks in above £9,100 — all of which eats into the margin when you operate via an umbrella.
Strategy beyond the calculator
Pension through the company: Employer pension contributions are a corporation tax deduction — you put pre-tax company money into a SIPP, skipping both Corp Tax and income Tax on the way in.
Flat-rate VAT scheme: If your gross is under £150k, you may pocket the difference between the flat rate you pay HMRC and the 20% VAT you charge — worth £2k-£4k per year.
Spouse as shareholder: A non-earning spouse can receive dividends up to the basic-rate band, doubling the dividend allowance and reducing your marginal rate.
War chest approach: Retain profit in the company and draw it in a lower-income year (sabbatical, career break, retirement) to stay under the higher-rate threshold.
At what day rate does outside IR35 beat inside IR35?
There is no single break-even number because it depends on how much salary you draw, your spouse's tax position, and expenses. As a rough guide, above about £350/day the Ltd-company route tends to outperform, and the gap widens sharply above £600/day where the higher-rate dividend tax (33.75%) still beats the combined 40% Income Tax + 2% NI that kicks in inside IR35.
Can I switch between inside and outside IR35 on different contracts?
Yes — many contractors run a mix. You might be inside IR35 on a 6-month banking role (paid umbrella) while keeping your Ltd company alive for an outside-IR35 side project. Each contract stands on its own for IR35 assessment. The key is that your Ltd company's non-IR35 work must be genuine business activity, not a disguised employment.
What's the most tax-efficient salary to pay myself from my Ltd?
Most contractors set salary at £12,570 (the personal allowance), which costs the company Employer NI of roughly £520 but entitles you to a full qualifying year for State Pension. Some go as low as £9,100 (the secondary threshold — no employer NI at all) and take everything else as dividends. The difference in total net is modest (£200-400/year), but the higher salary route credits your NI record for state benefits.
Should I worry about IR35 investigations or retrospective claims?
HMRC has won several high-profile IR35 cases, so diligence matters. Keep a written status determination from your client, maintain evidence of substitution (can someone else do the work?), control (who sets hours and methods?), and mutuality of obligation (no obligation to offer or accept future work). Most contractor accountants include IR35 defence insurance in their packages.
How do I compare a contractor day rate to a permanent salary?
A quick rule of thumb: multiply the day rate by 220 (working days) to get gross revenue, then multiply by 0.55 for inside IR35 or 0.65 for outside IR35 to estimate net. So a £500/day contract ≈ £60-72k net — roughly comparable to a £75-85k permanent salary once you factor in holiday pay, sick pay and employer pension contributions that permanent roles include but contract roles don't.