Updated for 2026-27 dividend rates (10.75%). Side-by-side comparison of PAYE inside IR35 vs Limited Company outside IR35 for UK contractors.
| Scenario | Day Rate | Annual Revenue | Inside IR35 | Outside IR35 |
|---|---|---|---|---|
| Average contractor | 400/day | 88,000 | 56,800 | 55,900 |
| Senior contractor | 600/day | 132,000 | 81,400 | 79,200 |
Inside IR35, your contract revenue is treated as employment income and taxed through PAYE. You pay income tax and National Insurance on everything above your personal allowance, just like a permanent employee on the equivalent salary.
Outside IR35, you operate through a Limited Company. You pay yourself a low salary (typically around 12,570) and extract remaining profit as dividends. Corporation tax at 19% or 25% is paid on profits. Then dividend tax at 10.75% (basic rate) or 35.75% (higher rate) is paid on dividends.
From April 2026, the basic rate of dividend tax increased from 8.75% to 10.75%. This change reduced the take-home advantage of outside IR35 by approximately 1,500 to 2,500 per year for a typical 500/day contractor. The dividend allowance remains at just 500.
Your IR35 status is determined by your actual working practices, not your preference or contract wording. The key tests are substitution (can you send someone else?), control (does the client control how you work?), and mutuality of obligation (is the client obligated to offer work?). HMRC uses the CEST tool for guidance, but it is not definitive.
Is it better to be inside or outside IR35?
It depends on your day rate. The dividend tax increase in April 2026 (basic rate up from 8.75% to 10.75%) narrowed the gap significantly. For many contractors at standard day rates, outside IR35 now offers minimal advantage. Use the calculator to see your specific figures.
What changed with IR35 in 2026-27?
The biggest change for contractors in 2026-27 is the dividend tax rate increase. The basic rate of dividend tax rose from 8.75% to 10.75%. This reduced the take-home advantage of operating outside IR35 through a Limited Company.
Can I still benefit from being outside IR35 in 2026?
Yes for higher day rates, but the benefit is smaller than before. On a 500/day contract at 220 days (110,000/year), the position now depends heavily on your salary level within the Ltd Co and your accountant's structure.
Free, accurate, 2026-27 rates. Scotland and tax code supported.