Question 1

What's the difference between Outside IR35 and Inside IR35?

Accepted Answer

Outside IR35 means HMRC considers your engagement a genuine business-to-business arrangement — you operate through your own Limited Company, pay corporation tax on profit, and extract income as salary + dividends. Inside IR35 means HMRC considers you economically equivalent to an employee of the end client — you must be paid via PAYE (typically through an umbrella company), with employer NI, employee NI, and full income tax deducted at source. The status determines your tax treatment, not your working pattern. See the full inside vs outside guide.

Question 2

How is contractor take-home calculated in 2026/27?

Accepted Answer

Three different routes, three different calculations. Outside IR35 Ltd: company income − director salary − employer NI − accountancy → corporation tax with marginal relief → distributable as dividends → personal income tax on salary + dividend tax (10.75% basic / 35.75% higher post-April-2026) + employee NI. Inside IR35 Umbrella: invoiced amount − umbrella margin − employer NI − apprenticeship levy → gross salary → PAYE income tax + employee NI. Permanent: gross salary → PAYE income tax + employee NI. The calculator above shows every step.

Question 3

Is a Limited Company always better than Umbrella in 2026/27?

Accepted Answer

Not anymore. Historically, Outside IR35 Ltd beat Inside IR35 Umbrella by £8,000–£15,000/year on take-home. After the April 2026 dividend tax rise (basic 8.75% → 10.75%, higher 33.75% → 35.75%) and employer NI at 15%, the gap has narrowed to £2,000–£8,000/year at typical day rates. At low rates and with no pension contributions, the gap can shrink to under £2,000. Pension contributions through your Ltd are the most powerful lever to widen the gap — see the pension strategy guide.

Question 4

Why does this calculator say Permanent beats Limited Company at some incomes?

Accepted Answer

Because, post-April-2026, it sometimes does. At the conventional £12,570 director salary with zero pension contribution, the corporation tax + dividend tax stack on a £100K Ltd company can produce slightly lower net take-home than the equivalent £100K permanent salary. This is the consequence of the dividend rate rise compounding with employer NI 15% and the personal allowance taper above £100K. The result flips back in Ltd's favour with employer pension contributions or by retaining profit. The calculator is intentionally honest — hiding the permanent comparison would make it a sales tool.

Question 5

What is the optimal director salary for 2026/27?

Accepted Answer

For a solo Ltd company with no other employees, £12,570 (equal to the personal allowance) is usually optimal. It uses the full PA, creates a corporation-tax-deductible expense at 25% main rate, and the £1,136 employer NI cost is itself CT-deductible. The net cost works out to about £852/year for the privilege of using the full £12,570 PA. For Ltd companies with a second non-director employee, the £10,500 Employment Allowance enables higher salaries (£42K typical) to become optimal. See the dedicated director salary calculator.

Question 6

How does the April 2026 dividend tax rise affect my take-home?

Accepted Answer

For a typical £115K gross contractor taking £12,570 salary and the balance as dividends: 2026/27 dividend tax is approximately £16,985 vs £15,498 under 2025/26 rates — a £1,487/year hit. The gap scales with dividend volume: ~£944 at £75K gross, ~£2,047 at £150K gross, plateauing around £2,241 at £200K (where dividends enter the unchanged additional rate). Full breakdown across income levels in the April 2026 dividend tax guide.

Question 7

Are the figures from this calculator accurate enough to file from?

Accepted Answer

No tax calculator is. These figures are informational, not regulated advice. Every rate comes from HMRC publications and is cited on the sources page, with the calculation logic documented on the methodology page. For decisions affecting your tax filing, mortgage application, or business structure, consult a qualified accountant or tax adviser. The calculator is a sanity check and a planning tool — not a substitute for professional advice.

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