IR35 Calculator 2025/26

What is IR35?

IR35 is UK tax legislation (officially the Intermediaries Legislation) designed to identify contractors who work in a way that is similar to employment but operate through a limited company or other intermediary to pay less tax. If a contract falls inside IR35, the contractor must pay broadly the same tax and National Insurance as an employee, even though they are not legally employed. The legislation has been in effect since April 2000 and was significantly reformed with the off-payroll working rules.

What is the financial impact of an IR35 determination?

The difference between inside and outside IR35 is significant. A contractor earning £100,000 per year outside IR35 can typically take home around £73,000-£75,000 by paying themselves a small salary and the rest as dividends. Inside IR35, the same contractor would take home approximately £58,000-£60,000, because income tax and National Insurance are deducted at source as if they were an employee. This represents a reduction of approximately £13,000-£17,000 per year, depending on individual circumstances.

Who decides IR35 status?

For contracts with medium and large private sector organisations (those meeting two of: turnover over £10.2 million, balance sheet over £5.1 million, or more than 50 employees) and all public sector bodies, the end client is responsible for determining IR35 status under the off-payroll working rules. For contracts with small private sector companies, the contractor's own limited company remains responsible for determining status. The determination should be based on the actual working practices, not just the contract terms.

What factors determine IR35 status?

HMRC and tribunals consider several factors when assessing IR35 status. The three key tests are: substitution (can you send a qualified substitute to do the work?), control (does the client control how, when, and where you work?), and mutuality of obligation (is the client obliged to offer work and are you obliged to accept it?). Other relevant factors include whether you provide your own equipment, whether you take financial risk, whether you work for multiple clients, and whether you are integrated into the client's organisation.

What is HMRC's CEST tool?

CEST (Check Employment Status for Tax) is HMRC's online tool for determining IR35 status. It asks a series of questions about the working arrangement and provides a determination of inside IR35, outside IR35, or undetermined. While HMRC states it will stand by CEST results (provided the information entered is accurate), the tool has been criticised for producing unclear results and not covering all relevant factors considered by tax tribunals. Many contractors and advisers recommend seeking professional advice alongside or instead of relying on CEST.

How does inside IR35 work in practice?

When a contract is inside IR35 under the off-payroll working rules, the fee-payer (usually the recruitment agency or end client) must deduct income tax and employee National Insurance from the contractor's payments before passing the net amount to the contractor's limited company. The fee-payer must also pay employer National Insurance (15% from April 2025). A 5% expense allowance was available for contractor-determined status but is not available under the off-payroll rules when the client makes the determination.

Can I challenge an IR35 determination?

Yes. If the end client determines your contract is inside IR35 under the off-payroll working rules, you have the right to request reasons for the determination. The client must respond within 45 days. You can provide evidence that the determination is incorrect, and the client must consider this and respond. If you disagree with the final determination, your options include negotiating contract changes to reflect genuine outside-IR35 practices, accepting the determination, or not taking the contract. Ultimately, HMRC can also challenge a determination if they believe it is incorrect.