- Inside IR35 means your contract is taxed broadly like employment, usually via an umbrella company.
- The assignment rate must cover employer NI (15%) and the apprenticeship levy (0.5%) before your gross pay.
- Your gross pay is then subject to income tax and employee NI like any salary.
- Take-home is typically materially lower than the same day rate outside IR35.
- You cannot claim the same business expenses you could through your own company outside IR35.
Calculator
How inside IR35 is taxed
When a contract is inside IR35, HMRC treats you as effectively an employee for tax. In the private sector the client or agency usually requires you to work through an umbrella company, which becomes your employer for the assignment.
The key consequence is that employment taxes apply: employer National Insurance, the apprenticeship levy, employee National Insurance and income tax all come out before you receive your net pay. There is no dividend route and no corporation tax, because there is no company of yours in the chain.
The umbrella deductions explained
The rate the agency pays the umbrella (the assignment rate) is not your gross salary. The umbrella deducts, in order:
- Its margin (a weekly or monthly fee, often £15 to £30 a week, excluded from the calculator above)
- Employer National Insurance at 15% on pay above £5,000
- The apprenticeship levy at 0.5%
What remains is your gross taxable pay, from which income tax and employee NI are then deducted to reach your net. Reputable umbrellas show all of this on a clear payslip; the figures should always reconcile.
Inside versus outside IR35
The same day rate produces a very different outcome depending on status. Outside IR35, working through your own company, you control the salary and dividend mix and pay corporation tax then dividend tax, which is usually more efficient. Inside IR35, employment taxes apply in full.
Compare the two side by side with our outside IR35 calculator, and remember that status is determined by the working relationship, not by preference.