At £800 a day, the gap between working outside IR35 and inside it is now about £1,800 a year. Five years ago that gap was the whole reason contractors argued about status. Three changes since have closed most of it: dividend rates rose two points on 6 April 2026, employer National Insurance sits at 15% on everything above £5,000, and single-director companies cannot claim the Employment Allowance.
Outside IR35 still wins at every rate below. It just wins by less than the market assumes, and by least where the money is biggest.
The assumptions
Every number below is recomputed at 2026/27 rates. 220 billable days a year. England, Wales or Northern Ireland. One person, no other income, no pension contributions, no student loan.
Business expenses are set to zero so the tax mechanics are visible. Real expenses reduce the outside-IR35 figures further and generally cannot be relieved inside IR35, widening the gap in the outside column’s favour.
Outside IR35: a £12,570 salary, employer NIC at 15% above the £5,000 secondary threshold, no Employment Allowance, and everything left after Corporation Tax distributed as dividends in the same year.
Inside IR35: the assignment rate has to fund the employer’s National Insurance before the deemed payment is calculated, so the deemed payment is the rate divided across employer NIC and pay. Apprenticeship Levy is excluded from the arithmetic and noted below.
| 2026/27 | Figure |
|---|---|
| Personal Allowance | £12,570, tapered £1 for £2 above £100,000 |
| Basic rate limit | £37,700 of taxable income |
| Higher rate threshold | £50,270 total income |
| Additional rate | Above £125,140 |
| Employee NIC | 8% from £12,570 to £50,270, then 2% |
| Employer NIC | 15% above £5,000 |
| Employment Allowance | £10,500 — not available to single-director companies |
| Corporation Tax | 19% to £50,000; 26.5% effective to £250,000; 25% above |
| Dividend rates | 10.75% / 35.75% / 39.35%, allowance £500 |
The results
Figures are rounded to the nearest pound.
| Day rate | Annual revenue | Outside IR35 take-home | Inside IR35 take-home | Difference |
|---|---|---|---|---|
| £350 | £77,000 | £54,348 | £49,770 | £4,578 |
| £500 | £110,000 | £69,932 | £66,414 | £3,518 |
| £650 | £143,000 | £82,962 | £78,057 | £4,905 |
| £800 | £176,000 | £95,066 | £93,245 | £1,821 |
As a share of billings:
| Day rate | Outside IR35 total tax | Inside IR35 total tax |
|---|---|---|
| £350 | 29.4% | 35.4% |
| £500 | 36.4% | 39.6% |
| £650 | 42.0% | 45.4% |
| £800 | 46.0% | 47.0% |
The £800 row is the one to sit with. At the top of the market, the outside-IR35 premium is roughly 1% of billings. Above £125,140 the additional dividend rate of 39.35% stacks on top of 25% Corporation Tax, while inside IR35 the marginal position is 45% Income Tax plus 2% employee NIC. The two converge.
The gap also does not rise smoothly. The narrowing at £500 comes from where each structure sits against the £50,270 higher-rate threshold — at that day rate neither structure reaches the Personal Allowance taper, so the taper is not what is moving the gap. The widening at £650 is the taper, which by then applies to both and hits them at different points.
How the £650 row is built
Annual revenue is £650 × 220 = £143,000.
Outside IR35
Employer NIC on the salary is 15% of (£12,570 − £5,000) = £1,135.50.
Profit chargeable to Corporation Tax is £143,000 − £12,570 − £1,135.50 = £129,294.50. That sits in the marginal relief band: 19% on the first £50,000 (£9,500) plus 26.5% on the remaining £79,294.50 (£21,013), giving £30,513 of Corporation Tax.
Distributable profit is £98,781.
Total income is £12,570 + £98,781 = £111,351, which is above £100,000 — so the Personal Allowance tapers to £6,894. That leaves £5,676 of the salary taxable at 20% (£1,135).
The dividends are then taxed: £500 at 0%, £31,524 at 10.75% (£3,389), and the remaining £66,757 at 35.75% (£23,866). Income Tax totals £28,390.
Take-home: £12,570 + £98,781 − £28,390 = £82,962.
Inside IR35
The £143,000 assignment rate has to cover both the deemed payment and the employer’s NIC on it. Solving for that gives a deemed payment of £125,000, with £18,000 of employer NIC on top (15% of £120,000).
At £125,000 the Personal Allowance has tapered to £70, so taxable income is £124,930: £37,700 at 20% (£7,540) plus £87,230 at 40% (£34,892) = £42,432.
Employee NIC is 8% on £37,700 (£3,016) plus 2% on £74,730 (£1,495) = £4,511.
Take-home: £125,000 − £42,432 − £4,511 = £78,057.
£18,000 of employer NIC never reaches you and never appears on a payslip. That is the single largest line in the inside-IR35 calculation, and the one contractors most often leave out when comparing an inside rate with an outside one.
The 60% band
Between £100,000 and £125,140 of adjusted net income the Personal Allowance is withdrawn at £1 for every £2, producing an effective marginal Income Tax rate around 60%. Both structures pass through it at the day rates above.
Outside IR35 you have a lever: leave profit in the company, or make an employer pension contribution, which is deductible against Corporation Tax and carries no National Insurance. Inside IR35 the deemed payment is calculated for you and the lever is largely gone.
What changed on 6 April 2026, beyond the rates
More clients now count as “small”. HMRC’s Employment Status Manual confirms it directly, at ESM10006A, “Size-threshold changes from 6 April 2025”: the Companies Act 2006 company size threshold increases apply for off-payroll working purposes too — turnover from £10.2m to £15m, balance sheet total from £5.1m to £7.5m, employees unchanged at 50, on the usual two-out-of-three test. ESM10006A is also express that the criteria have to be met for two consecutive financial years, so no client changes category on a single year’s figures.
Expect a contradiction if you go looking. HMRC’s client-facing off-payroll page still shows the old £10.2m turnover and £5.1m balance sheet figures and was last updated on 30 August 2024. ESM10006A, updated 22 July 2026, is the current position.
Where a client is small and in the private sector, responsibility for deciding status moves back to your own company under the original IR35 rules, not the client. That is more control and more risk, in the same move.
The timing depends on the client’s financial year and on the lag built into the off-payroll rules, so it does not switch on for everyone at once. Ask each client where they stand rather than assuming.
Student loans are your problem inside IR35. A deemed employer does not deduct student or postgraduate loan repayments from fees paid to an off-payroll worker. You must register for Self Assessment and report and pay them through your return. GOV.UK added this clarification in February 2026. A contractor who assumes PAYE has covered it will get a bill.
Apprenticeship Levy. Where the deemed employer’s pay bill exceeds £3m, the levy applies at 0.5% with a £15,000 allowance. Most agencies are over that threshold, so it is typically funded out of the assignment rate too. It is excluded from the figures above, making the inside-IR35 position slightly worse than shown.
What this means in practice
Convert the rates before comparing offers. An inside-IR35 assignment rate is not comparable to an outside one. On the £650 example, £143,000 of assignment rate produces £125,000 of gross pay — a 12.6% haircut before any tax at all.
A modest rate premium closes the gap. At £800 a day the outside-IR35 advantage was £1,821. An inside role paying roughly 2% more per day covers it.
Status is a legal question, not a pricing one. The off-payroll rules apply contract by contract, and a determination has to reflect the actual working arrangements. Do not choose a status because the arithmetic is nicer. HMRC’s Check Employment Status for Tax tool is a starting point, not an answer.
Frequently asked questions
How much can I take home on a £500 day rate in 2026/27?
On 220 billable days, £110,000 of revenue and no business expenses, roughly £69,932 outside IR35 and £66,414 inside. Outside assumes a £12,570 salary with the balance distributed as dividends after Corporation Tax; inside assumes the assignment rate funds the employer’s National Insurance before the deemed payment is calculated.
Is it still worth being outside IR35?
Financially, yes at every rate modelled, but by less than it used to be. The advantage runs from about £4,578 a year at £350 a day down to about £1,821 at £800 a day. Dividend rates rose two points on 6 April 2026, employer National Insurance is 15% above £5,000, and single-director companies cannot claim the Employment Allowance.
Why can’t my company claim the £10,500 Employment Allowance?
A company is ineligible where the sole employee liable for secondary Class 1 National Insurance is also a director. That describes most one-person contractor companies. Taking on a second employee earning above the £5,000 secondary threshold can change eligibility.
Do I repay my student loan automatically inside IR35?
No. A deemed employer does not deduct student or postgraduate loan repayments from fees paid to an off-payroll worker. You must register for Self Assessment and report and pay the repayments through your tax return.
My client says they are now a small company. What changes?
If the client is small and in the private sector, your own company becomes responsible for determining whether the off-payroll rules apply, rather than the client issuing a status determination statement. HMRC has confirmed that the Companies Act 2006 threshold increases — turnover to £15m and balance sheet total to £7.5m — apply for off-payroll purposes. Check the position with each client rather than assuming.
Getting the numbers right for your own contracts
These figures are a model, not a quote. Change the billable days, add real expenses, a pension contribution or a spouse shareholder, and the answer moves.
SmartFiling handles contractor and freelancer accounts, Corporation Tax, payroll and Self Assessment on fixed fees, entirely online. Every submission is reviewed by an ICAEW Chartered Accountant.
