Contractor calculator UK 2025/26

Outside IR35 means HMRC considers you a genuine independent contractor. You can take income from your limited company as a combination of a small salary and dividends, which is more tax-efficient. Inside IR35 means HMRC considers the relationship to be employment for tax purposes. Your limited company must operate PAYE, deducting Income Tax and National Insurance as if you were an employee. This typically reduces take-home pay by 20 to 30 per cent.

An umbrella company employs you directly and handles all PAYE administration. You are technically an employee of the umbrella company, which invoices your client on your behalf. After deducting their margin (typically 10 to 15 per cent of contract value), they pay you a salary with standard PAYE deductions. Umbrella companies are popular for contractors inside IR35 or those who want simpler administration. The take-home figure in the calculator above uses an estimated 12% umbrella margin.

The optimised outside IR35 structure involves paying yourself a minimum salary (equal to the NI secondary threshold of £9,100 in 2025/26) and taking remaining after-tax profit as dividends. Corporation Tax (19% on profits up to £50,000, marginal relief up to £250,000) is paid before dividends, and dividend tax is paid at 8.75% (basic rate) or 33.75% (higher rate) after the £500 dividend allowance. This combination is more tax-efficient than taking a full PAYE salary.