IR35 Calculator — £725/day Day Rate
Inside IR35 vs Outside IR35 · £188,500/year (×260 days) · 2025-26
Inside IR35 (PAYE)
| Gross (annual) | £188,500 |
| Personal Allowance | £0 |
| Income Tax | −£71,657 |
| Employee NI | −£5,781 |
| Net take-home | £111,062 |
Outside IR35 (Ltd Co)
| Revenue | £188,500 |
| Expenses (5%) | −£9,425 |
| Salary drawn | −£12,570 |
| Corporation Tax | −£41,342 |
| Dividend Tax | −£32,265 |
| Net take-home | £104,332 |
Note: Outside IR35 calculations are estimates based on an optimal salary/dividend mix. They assume: £12,570 salary (personal allowance), 5% allowable business expenses, standard corporation tax (19% small profits / 25% main rate), and dividend tax at 8.75%/33.75%. Actual take-home will vary. Consult a qualified accountant before making IR35 decisions.
IR35 impact on a £725/day contractor in 2025-26
A contractor on £725/day working 260 days per year generates £188,500 in annual revenue. The IR35 determination dramatically affects take-home pay:
Inside IR35: the entire £188,500 is treated as employment income. After Income Tax (£71,657) and National Insurance (£5,781), you take home £111,062 per year (£9,255/month). Your effective tax rate is 41.08%.
Outside IR35: you draw £12,570 salary (within the Personal Allowance, so no income tax and negligible NI). After 5% expenses (£9,425) and corporation tax (£41,342), you take £124,027 in dividends. Dividend tax of £32,265 leaves you with £104,332 per year — a saving of £-6,730 (-6.1% more) vs inside IR35.
Frequently asked questions
What is IR35?
IR35 is UK tax legislation (Intermediaries Legislation) that determines whether contractors working through limited companies should be taxed as employees. If "inside IR35", your income is treated as employment income and subject to full PAYE. If "outside IR35", you can use a limited company structure with a more tax-efficient salary/dividend mix.
Am I inside or outside IR35?
IR35 status depends on your working arrangements: substitution (can someone else do your role?), control (does the client direct how you work?), and mutuality of obligation (is there an expectation of ongoing work?). Since April 2021, medium and large private sector clients determine your status via a Status Determination Statement (SDS). Use HMRC's CEST tool at check-employment-status-for-tax.service.gov.uk, or consult a specialist IR35 accountant.
How much more do I earn outside IR35 on £725/day?
On a £725/day day rate (£188,500/year), outside IR35 take-home is £104,332 vs £111,062 inside IR35 — a saving of £-6,730/year (£-561/month, -6.1% more). The difference comes from corporation tax (19-25%) + dividend tax (8.75%/33.75%) being lower than income tax (20%/40%) + employee NI (8%).
What is the optimal salary/dividend split outside IR35?
The most tax-efficient structure for most contractors is: pay yourself a salary equal to the Personal Allowance (£12,570 in 2025-26). This avoids income tax and minimises NI. Then draw remaining company profits as dividends. The first £500 of dividends is tax-free (dividend allowance). Basic rate dividends are taxed at 8.75%, higher rate at 33.75%. This is what the outside IR35 figures on this page assume.
What corporation tax does a limited company pay in 2025-26?
From April 2023, corporation tax is 19% on profits up to £50,000 (small profits rate) and 25% on profits above £250,000 (main rate), with marginal relief between £50,000 and £250,000. For a £725/day contractor, company profits after salary and expenses are approximately £165,369, and corporation tax is estimated at £41,342.
Are outside IR35 calculations exact?
No — outside IR35 calculations are estimates based on a simplified model: £12,570 salary, 5% allowable expenses, standard corporation tax, and optimal dividend extraction. Your actual position depends on your specific expenses, accountant fees, dividend timing, pension contributions, and other factors. Always consult a qualified accountant before making IR35 decisions.