Figures: 2026/27 tax year. Reviewed by Noman Abbasi, ACCA, covering the April 2026 umbrella-company changes.
If your contract is outside IR35, you can work through your own limited company and pay yourself with a mix of salary and dividends. If it is inside IR35, you are taxed much like an employee, usually through an umbrella company on PAYE. This calculator shows the annual take-home each way from your day rate, and can also find the break-even day rate where a limited company starts to beat an umbrella.
Outside IR35: your own limited company
Your company invoices the day rate. It pays you a small director's salary (typically around the personal allowance, so no income tax or employee NIC on it), pays Corporation Tax on the remaining profit after costs, and you draw the rest as dividends. Dividends are taxed at lower rates than salary and carry no National Insurance, which is why the limited-company route usually nets more when you are genuinely outside IR35.
Inside IR35: umbrella PAYE
Inside IR35, an umbrella company employs you. Crucially, the employer's National Insurance, the apprenticeship levy and the umbrella's margin all come out of your assignment rate, not on top of it, before your gross taxable salary is worked out. That salary is then taxed under PAYE with income tax and employee National Insurance. This is why the same day rate leaves you with less inside IR35 than outside.
The break-even day rate
Running a limited company has fixed costs, accountancy, insurances and your own admin time. At low day rates those costs can outweigh the tax saving, so an umbrella is simpler and sometimes better off. Switch this tool to break-even mode to see the day rate at which the limited-company route overtakes the umbrella, given your running costs and days worked.
Important: you cannot just pick the higher number
Being outside IR35 is a status determination based on how you actually work, not a choice you make to save tax. For contracts with medium and large clients, the client decides your status. Treating an inside-IR35 contract as outside is a real risk. Use this calculator to understand the difference in take-home, then get your status assessed properly. Our accountants for contractors can review your contract and working practices, book a free call.
Frequently asked questions
What is the difference in take-home between inside and outside IR35?
Outside IR35, through your own limited company, you pay a small salary plus dividends, with Corporation Tax on company profit but no National Insurance on dividends, so you keep more. Inside IR35, on an umbrella, employer NIC, the apprenticeship levy and the umbrella margin come out of your rate first, and the rest is taxed under PAYE. At a typical day rate the outside-IR35 route usually nets noticeably more.
At what day rate is a limited company worth it over an umbrella?
It depends on your days worked and running costs, but there is a break-even day rate below which the umbrella is simpler and often no worse off, because company running costs eat the tax saving. This calculator’s break-even mode works out that crossover rate for your figures.
Can I choose to be outside IR35 to pay less tax?
No. IR35 status is determined by how you actually work, your control, substitution rights and whether you are part and parcel of the client’s organisation, not by preference. For medium and large clients, the client makes the determination. This calculator shows the take-home difference, but you must have your status assessed properly rather than assuming outside IR35.
How do umbrella company deductions work?
The umbrella receives your assignment rate and must cover the employer’s National Insurance, the apprenticeship levy and its own margin from it before working out your gross taxable pay. That gross pay is then taxed under PAYE with income tax and employee National Insurance. So several “employer” costs are effectively borne out of your rate, which is why umbrella take-home is lower.