Full comparison of PAYE inside IR35 vs Limited Company outside IR35 at £300–£1,000/day for 2026-27. Dividend tax rose to 10.75% from April 2026.
| Day rate | Annual revenue | Inside IR35 | Outside IR35 (Ltd) | Advantage outside |
|---|---|---|---|---|
| £300/day | £66,000 | £45,823 | £50,180 | £4,357 |
| £400/day | £88,000 | £58,430 | £64,102 | £5,672 |
| £500/day | £110,000 | £70,157 | £78,420 | £8,263 |
| £600/day | £132,000 | £80,784 | £91,643 | £10,859 |
| £700/day | £154,000 | £89,211 | £103,812 | £14,601 |
| £800/day | £176,000 | £97,238 | £115,540 | £18,302 |
| £1,000/day | £220,000 | £112,891 | £138,496 | £25,605 |
In 2025-26, the basic rate dividend tax was 8.75%. From April 2026 it rose to 10.75% — a 2 percentage point increase. For a contractor on £500/day extracting £80,000 in dividends, this increases the dividend tax bill by approximately £1,600. Across the whole market, contractors saw £1,500–£2,500 knocked off their outside IR35 take-home advantage.
Inside IR35, all contract revenue flows through the engager as PAYE salary. Income tax is charged at 20% on £12,570–£50,270 and 40% above. Employee NI at 8% on £12,570–£50,270 and 2% above. No corporation tax, no dividend complexity. Pension salary sacrifice works exactly as for permanent employees and reduces taxable income before NI as well as income tax.
Director salary is typically set at £12,570 (within the personal allowance — no income tax, and minimal NI). Contract revenue minus salary minus expenses minus corporation tax (19%) leaves distributable profit. Dividends: first £500 tax-free (dividend allowance), then 10.75% basic rate dividend tax and 35.75% higher rate dividend tax in 2026-27.
Outside IR35 Ltd Company costs typically include: accountant fees £1,500–£3,000/year; company formation and registered address £100–£300/year; professional indemnity insurance £500–£1,500/year. Add these to the calculation before comparing. At £300/day, outside IR35 may not cover these overheads versus inside IR35.
Your IR35 status is determined by your actual working arrangements, not your preference. The three tests are: right of substitution (can you send someone else to do the work?), control (does the client control how rather than just what you deliver?), and mutuality of obligation (is there an obligation to offer and accept work?). HMRC CEST tool provides guidance. Off-payroll working rules place the determination responsibility on the end-client for medium and large organisations.
What is the take-home difference between inside and outside IR35 in 2026?
At £500/day (220 days), inside IR35 take-home is approximately £70,157/year vs £78,420 outside as a Limited Company — a gap of about £8,263. At £400/day the gap narrows to roughly £5,000. At £300/day, outside IR35 may offer less advantage after accountancy costs (typically £1,500–£3,000/year). The April 2026 dividend tax increase to 10.75% reduced the outside advantage by £1,500–£2,500/year across typical day rates.
Is it still worth being outside IR35 after the 2026 dividend tax rise?
For most contractors on £400/day or above, outside IR35 still produces higher take-home, but the advantage is meaningfully smaller than in 2025-26. At £300/day the gap may not cover Ltd Company running costs. At £600–£700/day the gap remains substantial (£10,000–£16,000/year). Always model your specific rate including accountancy costs.
What changed for contractors in April 2026?
The basic rate of dividend tax rose from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The dividend allowance remained at £500. Employer NI rose to 15% (on the engager side for PAYE). These changes collectively reduced the outside IR35 take-home advantage and made inside IR35 (PAYE) relatively more attractive for lower-rate contractors.
How do I calculate outside IR35 take-home?
Director salary of £12,570 (within personal allowance, no income tax). Remaining contract revenue minus 19% corporation tax = distributable profit. Extract as dividends; first £500 is tax-free. Then dividend tax: 10.75% on dividends in the basic rate band, 35.75% in the higher rate band. Outside IR35 with £110,000 revenue: corporation tax ≈ £18,532, dividend tax ≈ £12,646, giving take-home of ≈ £78,420.
Free, accurate, 2026-27 rates. Scotland and tax code supported.