Outside IR35 Calculator
via Limited Company
Our Outside IR35 calculator looks at the financial implications of operating as a genuine business, outside of the IR35 rules.
Enter the relevant information in the input fields and our Outside IR35 Calculator will calculate the impact of working Outside IR35 via a limited company. You can use this calculator to review a split of your tax and take home pay, as well as a detailed breakdown of your limited company workings.
Enter Your Contract Rate
£
Net Income
£0
Take Home
£0
Total Capital
£0
Detailed Inputs
Take Home and Taxes
Limited Company
Take Home
Income Tax, Dividend Tax and National Insurance
INCOME | TAX RATE | TAX | |
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Corporation Tax | - | ||
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Totals | - | - |
Outside IR35 Calculator Information
How to use the calculator
There are two ways to use the calculator:
(1) Simplified: We recognise that tax rules can be complicated, so all you need to do is populate the "Contract Rate" and "Frequency" input boxes, and we will do the rest. Our Inside IR35 Calculator has been pre-populated with the most common variables, so once you enter the contract rate, we can provide an accurate estimate of the financial implications of working Inside IR35 via an umbrella company. This is useful for those wanting to calculate an estimate of their take-home pay quickly or those who may not yet have access to all the relevant contract details.
(2) Advanced: Our calculator offers dozens of editable input fields for those wanting more precise control over the variables used in the Inside IR35 calculation. Our calculator uses the calculation methodologies prescribed by HMRC, so adjusting these input fields to represent the actual working arrangements of the Inside IR35 contract in question will provide an accurate breakdown between take-home pay and all relevant deductions.
What do ‘Your Results’ mean?
Net Income
Net income is your total taxable income before any Personal Allowances, less any qualifying pension contributions. Your personal allowance is reduced by £1 for every £2 that your net income is above £100,000. Your allowance is zero if your income is £125,140 or above. If your net income exceeds £150,000, you will likely need to submit a Self-Assessment tax return.
Take Home
Take home is the amount you receive into your personal bank account after deducting all taxes, accrued holiday pay and student loan contributions.
Total Capital
Total capital consists of your take home pay, plus any pension contributions and accrued holiday pay. It is designed to give a more accurate representation of the overall financial gain from a contract and can be compared against the same figure in our Outside IR35 Calculator.
What is IR35?
IR35 is an employment status test determining whether a contract points towards employment or self-employment. It combats tax avoidance by closing loopholes, ensuring contractors working the same way as permanent employees pay the same taxes.
If your contract is 'inside IR35', it points towards employment. Your working arrangements are similar to those of a permanent employee, so HMRC imposes broadly the same income tax and national insurance liabilities
If your contract is 'outside IR35', it points towards self-employment, and you can enjoy the tax efficiency that self-employment brings (as well as all the associated risks).
How does IR35 work?
IR35 applies on a contract-by-contract basis. For each contract, the relevant 'decision-maker' (usually the end client) prepares a Status Determination Assessment ('SDS'). The SDS looks at the engagement contract's wording and the contractor's day-to-day working practices and decides whether IR35 applies.
HMRC offer detailed guidance notes and an online tool to help decision-makers determine whether IR35 is relevant. Third parties also specialise in performing these assessments and providing insurance against a potentially incorrect determination.
Who does IR35 apply to?
Any contractor that is a UK resident for tax purposes has the potential to be impacted by IR35. Although the party responsible for performing the SDS can vary, if you are a contractor paying tax in the UK, you need to consider IR35.
This is a point that often confuses contractors. They mistakenly believe that if a potential client is overseas, then IR35 doesn't apply. Instead, they become responsible for the SDS, decide whether they are inside IR35, and hold the liability should this decision be wrong.
What is a limited company?
A limited company is a type of business with a distinct legal identity, separate from those who own it (the shareholders) and those appointed to manage it (the directors). It is a business structure that limits the liability the company’s owners are exposed to.
In the event the limited company faces financial hardship, the shareholders’ personal assets are not at risk beyond their investment in the business. This is different to a sole trader or general partnership, both types of unincorporated businesses without legal distinction between the owners and the business itself.
As a limited company is a distinct legal entity, it can enter contracts in its own name, employ staff, sue and be sued, and is responsible for its debts and liabilities.
What is a ‘personal services company’?
A personal services company (‘PSC’) is simply another name for a private limited company set up by a contractor to provide their services to clients. They’re most often used in Outside IR35 arrangements, with the company acting as an intermediary between contractor and client.
In most situations, the company is owned 100% by the contractor; they are the sole shareholder and director.
When is a limited company right for me?
In general, a limited company is right for you if:
- Your contract is Outside IR35, and
- You intend on contracting for the long term.
If either of these criteria isn’t met, you may want to consider working through an umbrella company.
Why Contractors Don't Work As Sole Traders
Contractors rarely work as sole traders as they usually don't have a choice; most agencies and clients will refuse to engage them. They will stipulate that they require a company (limited or umbrella) to act as an intermediary in the chain of services.
They do this for two main reasons:
- Similar to IR35, if a client hires a sole trader as a contractor and is subsequently subject to an HMRC investigation over their employment status, they are liable for any additional income tax, National Insurance contributions, penalties, or fines. Most are unwilling to take on this risk.
- As no intermediary (limited company etc) separates the contractor from the client, a contractor is one step closer to the employer. Therefore, there is a greater risk that an individual trading as a sole trader could look to claim employment rights from the client, a common occurrence in sectors such as construction.
In addition to the above, operating as a sole trader has downsides for the contractors themselves. For a sole trader, there is no distinction between business and individual. You hold personal responsibility for the businesses' debts and may have to sell off personal assets to meet those debts should something go wrong.
Should I contribute to my pension personally or through my limited company?
As a limited company contractor, you can pay into your SIPP from your after-tax earnings or directly from the company.
If you make payments from your after-tax earnings, you get automatic tax relief at the basic rate of 20%; then you claim back the higher rate (40%) or additional rate (45%) relief via your self-assessment tax return.
If you make payments directly from your limited company, the contributions count as allowable business expenses, reducing the corporation tax you pay. You will also save on Employer’s National Insurance (something you can’t claim back if paying out of after-tax income) and income tax owed on the extra salary/dividend not taken.
Therefore, paying into your SIPP via your limited company is more tax-efficient than paying from your after-tax earnings.
An additional restriction comes with paying into your pension from after-tax earnings. You are restricted to contributing up to 100% of your annual salary into your pension, with dividends not counting to the limit. If you are a limited company contractor paying yourself mainly dividends and taking a small salary of £9,100, the most you can contribute from your after-tax earnings is £9,100.
You could always increase your salary to increase the limit, but this isn’t necessarily tax-efficient.
This salary threshold doesn’t apply to limited company contributions, meaning you can keep taking the £9,100 salary and contribute the total £60,000 into your pension.
Can I contribute to my SIPP via my limited company?
Yes, you can contribute to your SIPP via your limited company. Contributing to your SIPP is an excellent way of saving for retirement and a tax-efficient way of using your business's profits. The company's contributions to your pension are allowable expenses, meaning you reduce your taxable profits and, therefore, your corporation tax liability.
Another benefit of making employer pension contributions via your limited company is that employer pension contributions are not subject to National Insurance.
Outside IR35 Calculator
via Limited Company
Our Outside IR35 calculator looks at the financial implications of being caught by the IR35 tax legislation.
Enter the relevant information in the input fields and our Outside IR35 Calculator will calculate the impact of working Outside IR35 via an umbrella company. You can use this calculator to review a split of your tax and take home pay, as well as a detailed breakdown of your umbrella company workings.
Timing
Tax Year
Tax Code
Other Income
Student Loan
Pension
Allowances
Salaries
Retained Earnings
Joint Ownership
Expenses
Net Income
£0
Take Home
£0
Total Capital
£0
How to use the calculator
There are two ways to use the calculator:
(1) Simplified: We recognise that tax rules can be complicated, so all you need to do is populate the "Contract Rate" and "Frequency" input boxes, and we will do the rest. Our Inside IR35 Calculator has been pre-populated with the most common variables, so once you enter the contract rate, we can provide an accurate estimate of the financial implications of working Inside IR35 via an umbrella company. This is useful for those wanting to calculate an estimate of their take-home pay quickly or those who may not yet have access to all the relevant contract details.
(2) Advanced: Our calculator offers dozens of editable input fields for those wanting more precise control over the variables used in the Inside IR35 calculation. Our calculator uses the calculation methodologies prescribed by HMRC, so adjusting these input fields to represent the actual working arrangements of the Inside IR35 contract in question will provide an accurate breakdown between take-home pay and all relevant deductions.
What do ‘Your Results’ mean?
Net Income
Net income is your total taxable income before any Personal Allowances, less any qualifying pension contributions. Your personal allowance is reduced by £1 for every £2 that your net income is above £100,000. Your allowance is zero if your income is £125,140 or above. If your net income exceeds £150,000, you will likely need to submit a Self-Assessment tax return.
Take Home
Take home is the amount you receive into your personal bank account after deducting all taxes, accrued holiday pay and student loan contributions.
Total Capital
Total capital consists of your take home pay, plus any pension contributions and accrued holiday pay. It is designed to give a more accurate representation of the overall financial gain from a contract and can be compared against the same figure in our Outside IR35 Calculator.
What is IR35?
IR35 is an employment status test determining whether a contract points towards employment or self-employment. It combats tax avoidance by closing loopholes, ensuring contractors working the same way as permanent employees pay the same taxes.
If your contract is 'inside IR35', it points towards employment. Your working arrangements are similar to those of a permanent employee, so HMRC imposes broadly the same income tax and national insurance liabilities
If your contract is 'outside IR35', it points towards self-employment, and you can enjoy the tax efficiency that self-employment brings (as well as all the associated risks).
How does IR35 work?
IR35 applies on a contract-by-contract basis. For each contract, the relevant 'decision-maker' (usually the end client) prepares a Status Determination Assessment ('SDS'). The SDS looks at the engagement contract's wording and the contractor's day-to-day working practices and decides whether IR35 applies.
HMRC offer detailed guidance notes and an online tool to help decision-makers determine whether IR35 is relevant. Third parties also specialise in performing these assessments and providing insurance against a potentially incorrect determination.
Who does IR35 apply to?
Any contractor that is a UK resident for tax purposes has the potential to be impacted by IR35. Although the party responsible for performing the SDS can vary, if you are a contractor paying tax in the UK, you need to consider IR35.
This is a point that often confuses contractors. They mistakenly believe that if a potential client is overseas, then IR35 doesn't apply. Instead, they become responsible for the SDS, decide whether they are inside IR35, and hold the liability should this decision be wrong.
What is a limited company?
A limited company is a type of business with a distinct legal identity, separate from those who own it (the shareholders) and those appointed to manage it (the directors). It is a business structure that limits the liability the company’s owners are exposed to.
In the event the limited company faces financial hardship, the shareholders’ personal assets are not at risk beyond their investment in the business. This is different to a sole trader or general partnership, both types of unincorporated businesses without legal distinction between the owners and the business itself.
As a limited company is a distinct legal entity, it can enter contracts in its own name, employ staff, sue and be sued, and is responsible for its debts and liabilities.
What is a ‘personal services company’?
A personal services company (‘PSC’) is simply another name for a private limited company set up by a contractor to provide their services to clients. They’re most often used in Outside IR35 arrangements, with the company acting as an intermediary between contractor and client.
In most situations, the company is owned 100% by the contractor; they are the sole shareholder and director.
When is a limited company right for me?
In general, a limited company is right for you if:
- Your contract is Outside IR35, and
- You intend on contracting for the long term.
If either of these criteria isn’t met, you may want to consider working through an umbrella company.
Why Contractors Don't Work As Sole Traders
Contractors rarely work as sole traders as they usually don't have a choice; most agencies and clients will refuse to engage them. They will stipulate that they require a company (limited or umbrella) to act as an intermediary in the chain of services.
They do this for two main reasons:
- Similar to IR35, if a client hires a sole trader as a contractor and is subsequently subject to an HMRC investigation over their employment status, they are liable for any additional income tax, National Insurance contributions, penalties, or fines. Most are unwilling to take on this risk.
- As no intermediary (limited company etc) separates the contractor from the client, a contractor is one step closer to the employer. Therefore, there is a greater risk that an individual trading as a sole trader could look to claim employment rights from the client, a common occurrence in sectors such as construction.
In addition to the above, operating as a sole trader has downsides for the contractors themselves. For a sole trader, there is no distinction between business and individual. You hold personal responsibility for the businesses' debts and may have to sell off personal assets to meet those debts should something go wrong.
Should I contribute to my pension personally or through my limited company?
As a limited company contractor, you can pay into your SIPP from your after-tax earnings or directly from the company.
If you make payments from your after-tax earnings, you get automatic tax relief at the basic rate of 20%; then you claim back the higher rate (40%) or additional rate (45%) relief via your self-assessment tax return.
If you make payments directly from your limited company, the contributions count as allowable business expenses, reducing the corporation tax you pay. You will also save on Employer’s National Insurance (something you can’t claim back if paying out of after-tax income) and income tax owed on the extra salary/dividend not taken.
Therefore, paying into your SIPP via your limited company is more tax-efficient than paying from your after-tax earnings.
An additional restriction comes with paying into your pension from after-tax earnings. You are restricted to contributing up to 100% of your annual salary into your pension, with dividends not counting to the limit. If you are a limited company contractor paying yourself mainly dividends and taking a small salary of £9,100, the most you can contribute from your after-tax earnings is £9,100.
You could always increase your salary to increase the limit, but this isn’t necessarily tax-efficient.
This salary threshold doesn’t apply to limited company contributions, meaning you can keep taking the £9,100 salary and contribute the total £60,000 into your pension.
Can I contribute to my SIPP via my limited company?
Yes, you can contribute to your SIPP via your limited company. Contributing to your SIPP is an excellent way of saving for retirement and a tax-efficient way of using your business's profits. The company's contributions to your pension are allowable expenses, meaning you reduce your taxable profits and, therefore, your corporation tax liability.
Another benefit of making employer pension contributions via your limited company is that employer pension contributions are not subject to National Insurance.