- It depends on your IR35 status. Outside IR35, through your own company, you pay Corporation Tax then dividend tax and typically keep around 70 to 80% of your day rate. Inside IR35, via an umbrella, you are taxed like an employee and usually...
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In detail
The single biggest factor in a contractor's tax is IR35 status, which is decided by the reality of the working relationship, not by choice.
Outside IR35, you work through your own limited company. The company pays Corporation Tax on its profit, you take a small salary plus dividends, and you can offset genuine business expenses. Retention is typically 70 to 80% of the assignment value. Model it with the outside IR35 calculator.
Inside IR35, you are taxed broadly as an employee, usually through an umbrella company. The assignment rate first covers employer National Insurance and the apprenticeship levy, then income tax and employee National Insurance come off your gross pay. Retention is usually 55 to 65%. The inside IR35 calculator shows the breakdown.