UK Contractor
Tax Calculator
Enter your day rate and see how much you take home inside IR35, outside IR35 as a limited company, or through an umbrella company. Side-by-side comparison for 2026/27.
Contractor tax structures explained
UK contractors generally operate through one of three structures: inside IR35, outside IR35 through a personal service company (limited company), or through an umbrella company. Each has a different tax treatment and level of administrative burden.
Inside IR35
If your engagement is deemed inside IR35, you are taxed as if you are an employee of the end client. The fee-payer deducts income tax and employee National Insurance from your day rate, and also pays employer National Insurance on top. You receive a net salary with no ability to draw dividends. This is the least tax-efficient structure.
Outside IR35 — limited company
Operating outside IR35 through your own limited company allows you to draw a small salary (typically at the NI primary threshold or personal allowance) and take the remaining profit as dividends. Dividends benefit from a £500 tax-free allowance and lower rates than income tax. Corporation tax of 19% applies on profits up to £50,000. This is significantly more efficient but requires running a company, filing accounts, and — ideally — using an accountant.
Umbrella company
An umbrella company employs the contractor directly and processes payroll on their behalf. It is inside IR35 by design: employer NI, employee NI and income tax are all deducted from the contract rate. The umbrella charges a weekly or monthly margin for its service. Umbrella companies suit contractors who want minimal administration or are working inside IR35 on a short engagement.
Related calculators
If you take dividends from your limited company, our dividend tax calculator shows the additional tax on dividend income above the £500 allowance. Our income tax calculator covers the PAYE element of your director's salary. For the employee NI on your salary element, use the National Insurance calculator. Comparing your day rate to a permanent role? The main salary calculator shows the employed take-home for any gross figure. Our hourly to salary calculator converts a daily or hourly rate to an annual equivalent for easy comparison. To see which tax band your total income falls into, use our tax band calculator.
Frequently asked questions
IR35 is HMRC legislation designed to tackle disguised employment. If HMRC — or since 2021, the end client — decides your engagement resembles employment, you are inside IR35. This means paying PAYE tax and National Insurance as if employed, losing the ability to take dividends from a limited company. Outside IR35 engagements retain full limited company tax efficiency.
Inside IR35, employer National Insurance (13.8% above £9,100) is deducted from your contract rate before the deemed payment is calculated. Employee NI (8% up to £50,270, 2% above) and income tax at standard rates are then deducted from the deemed payment. The total tax burden is very similar to being a permanent employee.
The small profits rate of 19% applies on profits up to £50,000. Between £50,000 and £250,000, a marginal relief tapers the rate toward the main rate of 25%. Most contractors pay 19% as their annual profits typically fall below £50,000 after salary extraction.
Yes, for some contractors. If your role is inside IR35, an umbrella is often more practical than running a limited company for no tax benefit. Umbrella companies handle payroll, holiday pay accrual, and employer NI — useful for short engagements or contractors who prefer minimal admin. The weekly margin is the main cost.