A plain-English comparison of Inside and Outside IR35 take-home pay for UK contractors, with the real numbers behind each status.
The short version
Outside IR35 means genuine self-employment through your own limited company, with full access to Corporation Tax and dividend tax efficiency. Inside IR35 means you’re taxed broadly as an employee would be, with PAYE deducted at source by the fee-payer — even though you’re still working through your own company.
Why the gap has narrowed
The financial difference between the two statuses used to be dramatic. It’s still real, but genuinely smaller than it was before the Corporation Tax rise to 25% in April 2023 and the Employer National Insurance changes in April 2025 — worth knowing if you’re weighing up a contract based on outdated assumptions about the gap.
What actually determines your status
It isn’t your choice — it depends on the genuine nature of the working relationship (control, substitution, mutuality of obligation). Medium and large clients issue a formal Status Determination Statement; small clients leave the responsibility with your own company.
Compare your take-home under both scenarios with the Payslp contractor calculator.
A concrete illustrative comparison
Consider a contractor earning £500 a day, roughly £110,000 annualised across 220 working days. Outside IR35 through a limited company with typical salary/dividend planning, take-home is generally meaningfully higher than the same £110,000 processed Inside IR35 through PAYE — though the exact gap depends heavily on individual circumstances and has narrowed with recent tax changes.
Frequently asked questions
Who decides my IR35 status?
For medium/large clients, the client itself, via a formal Status Determination Statement. For small clients, the responsibility sits with your own limited company to self-assess.
Can I challenge an IR35 determination I disagree with?
Yes — clients are required to have a status disagreement process you can use to challenge a determination you believe is incorrect.