Inside vs Outside IR35: The Financial Difference

The financial gap — by the numbers

At a £450 day rate, 220 days per year (£99,000 annual revenue), the difference between inside and outside IR35 is typically £18,000–£22,000 per year in take-home pay. Here's why:

Outside IR35: salary + dividends strategy

Revenue flows into your company. You take a salary of £12,570 (no income tax, minimal NI), pay corporation tax on remaining profits, then take dividends at 8.75% in the basic rate band. Employer NI on the salary is offset by the corporation tax deduction.

Inside IR35: deemed employment income

All revenue is treated as employment income. Income tax at 20% applies on everything above the personal allowance. Employee NI at 8% on earnings between £12,570 and £50,270. No dividend option. No corporation tax planning.

Approximate take-home comparison (2026-27)

Day rate	Days/year	Revenue	Outside IR35	Inside IR35	Difference
£300	220	£66,000	~£46,500	~£38,000	~£8,500
£450	220	£99,000	~£65,000	~£55,000	~£10,000
£600	220	£132,000	~£82,000	~£69,000	~£13,000

Use the IR35 calculator for precise figures based on your salary and day rate.

Negotiating a rate uplift for inside IR35

Many contractors negotiate a higher day rate when inside IR35 to compensate for the additional tax. A £450/day outside contractor would need approximately £540–£560/day inside IR35 to achieve the same take-home — a ~20–25% uplift. Whether clients accept this depends on market conditions and demand for your skills.

Frequently asked questions

Does inside IR35 affect my pension contributions?

Inside IR35, employer pension contributions from the fee-payer become complicated — they do not typically pay these. However, your company can still make employer pension contributions from the deemed employment income it receives, reducing the tax impact.

Can I still run my company if inside IR35?

Yes. The inside-IR35 contract income is taxed as employment income, but you still operate through the company. You can still have outside-IR35 contracts simultaneously.

What expenses can I claim inside IR35?

Inside IR35, you cannot claim expenses in the same way as outside. The 5% allowance was removed for medium/large clients. You can still claim pension contributions — which is the main tax efficiency available inside IR35.