IR35 (the off-payroll working rules) determines whether a contractor working through a Personal Service Company (PSC) should be taxed as an employee or as a genuine self-employed person. If inside IR35, you pay income tax and NI as if employed.

IR35 Calculator UK 2026 — Inside or Outside IR35?

Q: What are the IR35 rules in 2026?

Since April 2021, medium and large private-sector clients decide the IR35 status of contractors via a Status Determination Statement (SDS). Small companies still allow the contractor to self-determine. The rules apply when working through a PSC or similar intermediary.

Q: How much tax do I pay inside IR35?

Inside IR35 you lose the benefit of paying yourself via salary + dividends. You pay income tax (20/40/45%) and Employees NI (8%/2%) on deemed employment income. You also cannot claim the 5% expense allowance (removed in 2024). Vs outside IR35, the extra tax typically ranges from £8,000 to £20,000+ per year depending on income level.

Step 1: Answer the IR35 Status Questions

Your Contract Details

Annual contract value (£)

Limited company expenses/yr (£)

IR35 Status Indicators (check all that apply to your contract)

Substitution: You have the right to send a substitute with similar skills if you cannot work — and this has been tested in practice or is a genuine contractual right.

Financial Risk: You bear financial risk — e.g., fixed-price contract, must redo defective work at own cost, or have multiple clients.

Control: You control how, when and where you do the work — the client specifies only the outcome/deliverable, not the method.

Mutuality of Obligation: The client is obliged to offer you work and you are obliged to accept it — similar to an employment relationship. ⚠️ Inside IR35 indicator.

Part & Parcel: You are managed like an employee — attend team meetings, have a fixed desk, appear on org charts, receive employee benefits. ⚠️ Inside IR35 indicator.

Exclusive/Long-term: You work exclusively for one client for 2+ years. This creates an employment-like relationship. ⚠️ Inside IR35 indicator.

Own Equipment: You use your own tools, equipment and work from your own premises — not provided by the client.

Project-Based: Your contract is for a specific project or deliverable with a clear end date — not an open-ended rolling engagement.

Fixed Hours: Your contract specifies fixed hours (e.g., 9–5, Mon–Fri) in the same way as an employee. ⚠️ Inside IR35 indicator.

Business-like: You have a business website, professional indemnity insurance, active marketing and multiple clients or client history.

Tax Comparison 2026/27

Item	Outside IR35 (Ltd)	Inside IR35

What is IR35 and Why Does It Matter?

IR35 — formally known as the off-payroll working rules — is UK tax legislation that determines whether a contractor working through an intermediary (typically a Personal Service Company or Ltd) should be taxed as an employee or as a self-employed professional. The name comes from Inland Revenue press release number 35, issued in 1999 when the rules were first proposed.

The key financial issue: contractors outside IR35 can pay themselves via a small salary (below the NI threshold) plus dividends taxed at lower rates (8.75%/33.75%). Contractors inside IR35 must pay income tax and National Insurance on their deemed employment income — the same as a permanent employee — eliminating most of the tax advantage of contracting through a Ltd company.

The Three Key Tests HMRC Uses

Substitution — Can you send someone else to do the work? A genuine right of substitution (ideally exercised in practice) strongly indicates outside IR35.
Mutuality of Obligation — Is the client obliged to offer work and you obliged to accept? If yes, this mirrors employment and points inside IR35.
Control — Does the client control how (not just what) you work? High control indicates inside IR35; autonomy over method indicates outside.

Who Decides IR35 Status in 2026?

Since April 2021, the responsibility for determining IR35 status shifted to the end-client (the company hiring the contractor) for medium and large businesses. A Status Determination Statement (SDS) must be issued. Small companies (meeting 2 of: turnover <£10.2m, balance sheet <£5.1m, <50 employees) still leave the determination to the contractor.

HMRC provides the CEST tool (Check Employment Status for Tax) for guidance, though its results are not always definitive. Many contractors use specialist IR35 insurance and contract review services to protect themselves.

Frequently Asked Questions — IR35 2026

What is IR35?

IR35 (off-payroll working rules) determines whether a contractor working through a Personal Service Company should be taxed as an employee or as genuinely self-employed. If inside IR35, you pay income tax and National Insurance on your deemed employment income, losing most of the tax benefits of contracting through a limited company.

What are the IR35 rules in 2026?

Since April 2021, medium and large private-sector clients determine IR35 status via a Status Determination Statement (SDS). Small companies still allow self-determination. In 2026, the rules remain as revised post-2021, with HMRC actively policing compliance. The 5% expense allowance for inside-IR35 contractors was removed.

How much tax do I pay inside IR35?

Inside IR35, you pay income tax (20% basic rate up to £50,270; 40% higher rate up to £125,140; 45% additional rate above) and Employee National Insurance (8% on £12,570–£50,270; 2% above). You cannot extract profits as dividends. The typical additional tax burden vs outside IR35 is £8,000–£20,000+ per year depending on income.

IR35 Calculator UK 2026 Inside or Outside?