Contractor Day Rate Calculator
Calculate your take-home pay as a contractor. Compare Inside vs Outside IR35 and see the equivalent permanent salary.
What this calculator does
This calculator converts a contract day rate into annual take-home pay under both IR35 outcomes. Enter your daily or hourly rate, choose whether the engagement is inside or outside IR35, add your annual business expenses and the number of weeks you expect to work, and it works through the full chain to a net figure.
Outside IR35 it models a limited company: revenue less expenses gives profit, corporation tax is applied, and the remainder comes out as salary and dividends with their own tax treatment. Inside IR35 it models an umbrella arrangement, where employer National Insurance, the Apprenticeship Levy, and the umbrella margin are deducted from the assignment rate before PAYE begins. It also shows the permanent salary that would produce the same net pay.
When to use it
The most valuable moment is before you accept a rate, particularly when a client offers one figure inside IR35 and an agency offers another outside. Those numbers are not comparable and cannot be ranked without running them, because the inside route carries employment costs deducted from the same pot of money.
It is also how you answer the perennial question of whether contracting beats a permanent role. The permanent equivalent figure converts your net contractor income into the salary that would match it, and if that number is close to what you are already earning, the extra risk, unpaid holiday, and lack of sick pay may not be worth it. Contract rates need a real premium, not parity, to make sense.
Understanding the inputs
Rate can be entered daily or hourly; agencies usually quote day rates in the UK, and the assignment rate quoted for an inside-IR35 role is generally the amount before employment costs, not your gross pay.
Weeks worked per year is the input people get wrong. Fifty-two is fantasy for a contractor: bank holidays, holiday you actually take, sick days, and gaps between contracts realistically leave 42 to 46 billable weeks. Annual business expenses should cover only genuinely allowable costs such as accountancy, insurance, equipment, and software, and note that this field has almost no effect inside IR35 because those deductions are not available through an umbrella.
A worked example
Take 500 pounds a day for 44 weeks, or 220 days, giving 110,000 pounds of revenue, with 6,000 pounds of business expenses, using 2026/27 rules. Outside IR35 through a limited company, taking a director's salary near the personal allowance leaves roughly 91,400 pounds of profit. Corporation tax with marginal relief comes to about 20,500 pounds, leaving around 71,000 pounds distributable, on which dividend tax at 10.75 and 35.75 percent takes roughly 15,750 pounds. Net take-home lands near 67,750 pounds.
The same 110,000 pound assignment rate inside IR35 loses employer National Insurance, the Apprenticeship Levy, and an umbrella margin first, leaving gross pay near 94,000 pounds. PAYE and employee National Insurance on that leave roughly 65,000 pounds. The gap is about 4,000 pounds, narrower than contractors expect, because corporation tax rises and dividend allowance cuts have eroded the limited company advantage.
Limitations and assumptions
This is an estimate, not tax advice, and HMRC is the authority. IR35 status is a legal question about the reality of the engagement, not a setting you choose, and getting it wrong carries liability that can reach back years. A contract review from a specialist is cheap relative to the exposure.
The model assumes a single-director company on a conventional salary and dividend split, a full year on one rate, and a typical umbrella margin. It does not handle the Employment Allowance, the Flat Rate VAT Scheme, pension contributions made from the company, which are often the single most efficient use of profit, multiple shareholders, or Business Asset Disposal Relief on winding up. Corporation tax rates, dividend allowances, and National Insurance thresholds all change at Budgets, so verify current figures and use an accountant who works with contractors.
Common Questions
- What does inside or outside IR35 actually mean?
- IR35 asks whether, stripping away the limited company, the working relationship would look like employment. Outside means genuine business-to-business supply and you can pay yourself through salary and dividends. Inside means you are taxed broadly as an employee. The tests turn on control, personal service and the right of substitution, and mutuality of obligation.
- Who decides my IR35 status?
- Since the off-payroll reforms, the end client decides for engagements with medium and large private sector organisations and all public sector bodies, and must issue a Status Determination Statement with reasons. Only when the client is a small company does the contractor's own limited company retain responsibility for the determination and the liability that follows it.
- Why does an inside-IR35 rate need to be higher?
- Because employer National Insurance and the Apprenticeship Levy come out of the assignment rate before you are paid, along with the umbrella company's margin. Those are costs a permanent employer would bear separately. As a rough guide, an inside rate needs to be around 15 to 20 percent above an outside rate to leave you similarly placed.
- Can I still claim expenses inside IR35?
- Very little. Supervision, direction, and control rules generally block relief for travel and subsistence to a client site once you are inside, and an umbrella cannot deduct business expenses from your gross pay. Outside IR35 your company can deduct genuine business costs before corporation tax, which is a meaningful part of the difference.
- What is the optimal salary and dividend split?
- The common approach is a director's salary near the personal allowance, keeping the year qualifying for State Pension purposes while minimising National Insurance, with the remaining profit taken as dividends after corporation tax. The exact optimum shifts with the secondary threshold, the dividend allowance, and whether you qualify for the Employment Allowance, so take advice annually.
- How is corporation tax calculated on my profits?
- For 2026/27 the small profits rate of 19 percent applies to profits up to 50,000 pounds and the main rate of 25 percent above 250,000 pounds, with marginal relief tapering between them. Associated companies divide those limits. Profits are revenue minus allowable expenses including your own salary, which is why the salary and dividend split matters.
- Is an umbrella company or my own limited company better?
- If the role is genuinely outside IR35, a limited company usually leaves more in your hand and gives you control over timing. If it is inside, an umbrella is simpler and the tax outcome is broadly the same either way, so the deciding factors become administration, umbrella margin, and whether you expect further outside work later.
- Do I need to charge VAT on my day rate?
- You must register once taxable turnover passes the registration threshold, which is 90,000 pounds and reviewed at Budgets, and many contractors register voluntarily below it. For VAT-registered clients the VAT is neutral since they reclaim it. The Flat Rate Scheme can leave a small surplus for low-expense businesses, though the limited cost trader rules removed most of that advantage.
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