IR35 Calculator UK 2025/26

IR35 is UK tax legislation introduced in 2000 to combat 'disguised employment' where workers provide services through a Personal Service Company (PSC) but would be employees if engaged directly. If caught inside IR35, you pay tax like an employee (income tax + NICs) rather than taking dividends at lower tax rates. Since April 2021, medium and large private sector clients determine IR35 status and deduct tax at source if you're deemed inside IR35.

IR35 status is determined by examining the working relationship, not just the contract. Key indicators include: Control (who decides how/when/where you work), Substitution (can you send someone else), Mutuality of Obligation (ongoing work expectation), Financial Risk (do you bear business risk), Equipment (do you provide your own), and Integration (are you part of the client's organization). Being outside IR35 typically requires freedom over work methods, genuine substitution rights, no ongoing work obligation, and bearing your own business risk.

CEST (Check Employment Status for Tax) is HMRC's free online tool for determining IR35 status. While HMRC says they will stand by CEST decisions, the tool has been criticized by contractors and tax professionals for being overly simplistic, not considering case law properly, and producing 'undetermined' results in complex cases. Many contractors seek professional IR35 reviews alongside or instead of CEST, especially for high-value contracts or where status is borderline.

Public sector: Since April 2017, the end client determines IR35 status and is responsible for deducting tax for contractors caught inside IR35. Private sector: Since April 2021, medium and large private sector clients have the same responsibility. Small private sector companies (turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees - meeting 2 of 3 criteria) still leave IR35 determination to the contractor's PSC. This means working for small companies offers more control over your IR35 status.

Yes, you have the right to challenge. First, use your client's internal dispute resolution process (they must have one by law for medium/large companies). Provide evidence of your working practices that support outside IR35 status. If unsuccessful, you can appeal to HMRC, though this is time-consuming. The ultimate recourse is a tribunal, where several landmark cases like Atholl House, RALC Consulting, and Kickabout have established important precedents. Many contractors also obtain IR35 insurance to cover investigation costs and potential tax liabilities.

Inside IR35, you're taxed like an employee. The fee-payer (often an agency or client) deducts income tax at 20%/40%/45% and employee National Insurance at 8% (reduced from 12% in January 2024). Additionally, employer's NI at 13.8% is deducted from your fee. You can claim a 5% allowance for running your company, reducing the deemed payment. Overall, inside IR35 contractors typically retain 55-65% of their gross fee compared to 70-80% outside IR35, depending on income level.

Blanket assessments occur when a client determines all contractors as inside IR35 regardless of individual circumstances. While not explicitly illegal, HMRC guidance states each engagement must be assessed on its own merits. However, enforcement is weak, and many large companies use blanket assessments to avoid administrative burden and risk. Options include: negotiating individual assessments with evidence, seeking alternative clients who assess properly, using umbrella companies, or taking permanent employment.

If you're inside IR35, an umbrella company can be a sensible option as you'll be taxed as an employee anyway. Benefits include: simpler administration (no company accounts), statutory rights (holiday pay, sick pay), and potentially lower accountancy costs. However, umbrella margins eat into your rate, and you lose the 5% IR35 allowance. Keep your limited company dormant if you plan to return to outside-IR35 work. Avoid 'mini-umbrella' or loan scheme arrangements marketed as tax-saving - HMRC considers these tax avoidance schemes with serious consequences.