Every article about IR35 tells you the status matters financially. Very few show you the actual numbers.
So here they are. Three common contractor day rates, three scenarios each — outside IR35 through a limited company, inside IR35 through an umbrella, and inside IR35 as an employee on PAYE. All calculated for 2026/27, all based on 230 working days, all using current tax rates.
A few caveats before we get into the numbers. These are estimates — real take-home depends on your specific expenses, pension contributions, whether you're VAT registered, and your company year end. The umbrella calculations assume a typical margin of £20 per week. The Ltd company calculations use the standard £5,000 optimal salary with all remaining after-tax profit taken as dividends.
With that said — here's what the difference actually looks like.
Annual take-home comparison — 2026/27 estimates
Based on 230 working days, £5,000 director salary (Ltd), £20/week umbrella margin. 2026/27 rates. Calculate your specific rate →
£400 per day — £92,000 annual contract
Outside IR35 — Ltd company
£400 a day for 230 working days is a £92,000 contract. A £5,000 salary leaves £87,000 of profit in the company. Corporation tax on that profit is approximately £21,750, which leaves approximately £65,250 to take as dividends. Dividend tax on that amount is approximately £14,450. Annual take-home is approximately £51,800, or approximately £4,317 a month. The effective rate is approximately 43.7%.
Inside IR35 — umbrella
Through an umbrella, employer National Insurance comes off before anything reaches payroll. At 15% above £5,000, that deduction is approximately £13,050, leaving £78,950 for payroll. Income tax on that is approximately £20,900 and employee National Insurance is approximately £5,313. The umbrella margin of £20 a week is £1,040 over the year. Take-home is approximately £51,697, or approximately £4,308 a month. The effective rate is approximately 43.8%.
Inside IR35 — PAYE
Direct PAYE is the umbrella calculation without the margin. Take-home is approximately £52,737, or approximately £4,395 a month. The effective rate is approximately 42.7%.
PAYE actually produces the highest take-home at this rate. Ltd outside IR35 comes second, umbrella inside IR35 narrowly behind. This surprises most contractors. At £400/day, the employer NI deduction that reduces taxable salary under PAYE produces a lower overall tax burden than the full corporation tax hit on a Ltd company. The difference is small — about £900/year between PAYE and Ltd — but it runs directly against the assumption that outside IR35 always wins financially.
| Outside IR35 Ltd company |
Inside IR35 Umbrella |
Inside IR35 PAYE |
|
|---|---|---|---|
| Annual take-home | £51,800 | £51,697 | £52,737 ✓ |
| Monthly take-home | £4,317 | £4,308 | £4,395 |
| Effective tax rate | 43.7% | 43.8% | 42.7% |
£500 per day — £115,000 annual contract
£500/day is probably the most common benchmark in mid-level UK contracting. Here's where the IR35 decision really bites. Over 230 days that is a £115,000 contract.
Outside IR35 — Ltd company
Salary stays at £5,000, so corporation tax falls on £110,000 of profit at 25%: £27,500. After corporation tax, £82,500 is available as dividends. The basic rate band left for those dividends is £50,270 − £5,000 − £12,570 = £32,700, taxed at 8.75%, which is £2,861. The remaining £49,300 is taxed at 33.75%, which is £16,639. Total dividend tax is £19,500. Take-home is £5,000 + £82,500 − £19,500 = £68,000, or £5,667 a month. The effective rate is approximately 40.9%.
Inside IR35 — umbrella
Employer National Insurance is approximately £16,500, leaving £98,500 for payroll. Income tax is approximately £29,700 and employee National Insurance is approximately £6,586. After the £1,040 umbrella margin, take-home is approximately £61,174, or approximately £5,098 a month. The effective rate is approximately 46.8%.
Inside IR35 — PAYE
On direct PAYE, take-home is approximately £62,214, or approximately £5,185 a month. The effective rate is approximately 45.9%.
Ltd outside IR35 now wins clearly — £68,000 vs £62,214 for PAYE, a gap of approximately £5,786 per year — £482 per month, every month. Factor in accountant fees of £1,500 and you're still £4,286 better off outside IR35 annually. This is the level where the IR35 decision starts to matter seriously.
| Outside IR35 Ltd company |
Inside IR35 Umbrella |
Inside IR35 PAYE |
|
|---|---|---|---|
| Annual take-home | £68,000 ✓ | £61,174 | £62,214 |
| Monthly take-home | £5,667 | £5,098 | £5,185 |
| Effective tax rate | 40.9% | 46.8% | 45.9% |
| vs PAYE difference | +£5,786/yr | -£1,040/yr | — |
£600 per day — £138,000 annual contract
Outside IR35 — Ltd company
£600 a day for 230 days is a £138,000 contract. After the £5,000 salary, corporation tax on £133,000 at 25% is £33,250, leaving £99,750 in dividends. The basic rate slice is again £32,700 × 8.75% = £2,861. The higher rate applies to £66,550 × 33.75% = £22,461. Total dividend tax is £25,322. Take-home is £5,000 + £99,750 − £25,322 = £79,428, or £6,619 a month. The effective rate is approximately 42.4%.
Inside IR35 — umbrella
Employer National Insurance is approximately £19,950, leaving £118,050 for payroll. Income tax is approximately £37,920. Employee National Insurance is approximately £6,811. That employee NI figure stays lower than a straight percentage of the full salary because employee NI drops to 2% above £50,270. After the £1,040 umbrella margin, take-home is approximately £72,279, or approximately £6,023 a month. The effective rate is approximately 47.6%.
Inside IR35 — PAYE
On direct PAYE, take-home is approximately £73,319, or approximately £6,110 a month. The effective rate is approximately 46.9%.
Ltd outside IR35 wins by approximately £6,109/year over PAYE. The gap has widened from the £500/day comparison.
| Outside IR35 Ltd company |
Inside IR35 Umbrella |
Inside IR35 PAYE |
|
|---|---|---|---|
| Annual take-home | £79,428 ✓ | £72,279 | £73,319 |
| Monthly take-home | £6,619 | £6,023 | £6,110 |
| Effective tax rate | 42.4% | 47.6% | 46.9% |
| vs PAYE difference | +£6,109/yr | -£1,040/yr | — |
What the numbers actually tell you
The £400/day result is the counterintuitive one. PAYE beats a Ltd company outside IR35 at this level. Employer NI reduces the income that gets taxed in a way corporation tax does not replicate at lower profit levels. That does not mean you should want to be inside IR35 at £400/day — there are other reasons to prefer an outside determination — but the financial argument for a Ltd company at this rate is weaker than most contractors assume.
At £500/day and above, outside IR35 clearly wins. The gap is £5,000–£6,000 a year at these rates, and it grows as income rises. Even after accountant fees you are £4,000–£5,000 better off outside IR35.
The difference between umbrella and PAYE is small — typically £1,000 or less, depending on the umbrella margin. If you are inside IR35, the choice between an umbrella and direct PAYE is more about convenience and flexibility than the tax outcome.
Calculate your specific inside vs outside IR35 take-home at your day rate.
Open IR35 calculator →The thing the numbers don't show
Blanket determinations. Some contractors are inside IR35 on contracts where an individual assessment would conclude outside. The £5,000-plus annual cost is being imposed rather than reflecting the actual working relationship.
Rate negotiation. If a client is putting you inside IR35, they are asking you to absorb a £5,000–£6,000 annual tax increase at £500/day. That is a legitimate negotiating point. The rate should reflect your net position, not just the gross contract value.
Status changes between contracts. Each new contract is assessed on its own terms. Do not assume the status from your last engagement carries over automatically.