Insights
A not at all dumb guide to IR35
How to work out your Inside vs Outside IR35 rate
Understanding the difference between Inside and Outside IR35 is key to knowing what you’ll actually take home as a contractor. While rates may look higher Inside IR35, the reality is often very different once costs are applied.
Inside IR35 rates are typically around 20% higher than Outside IR35 rates to cover employer costs.
| Inside IR35 | Outside IR35 |
|---|---|
| Higher day rate | Lower day rate |
| Lower take-home pay | Higher take-home potential |
| Treated as employee for tax | Self-employed |
| Less control | Full control |
| No financial risk | Takes on financial risk |
How Inside vs Outside IR35 rates work
Inside IR35 day rates usually include employer costs like National Insurance, apprenticeship levy, holiday pay, and pension contributions.
These costs are built into the rate, which is why Inside IR35 roles often appear higher on paper.
Example: Outside IR35 = £500/day | Inside IR35 = £600/day (approx.)
What are Inside IR35 charges?
When working Inside IR35, the contractor is treated like an employee for tax purposes. This means the following costs must be accounted for:
- Employer National Insurance: 15% from April 2025
- Employee National Insurance: deducted from pay
- Apprenticeship Levy: 0.5%
- Holiday pay: around 12.07%
- Pension contributions: if applicable
These costs reduce take-home pay, even though the headline rate is higher.
What does Outside IR35 mean?
- Genuine self-employment for the contract
- Defined deliverables via a Statement of Work (SOW)
- Control over how, when, and where work is completed
- Substitution: ability to send a replacement
- Control: autonomy over work methods
- Mutuality of Obligation: no obligation for ongoing work
Contractors take on financial risk and are paid for outcomes, not just time.
The 2-year rule - myth busted
- There is no 24-month limit on being Outside IR35
- The rule only applies to travel and expense claims
- IR35 status is based on working practices, not time
- Best practice: keep contracts under 12 months and renew
IR35 is determined by how you work, not how long you work.
What’s changing from April 2026?
- Increased HMRC focus on umbrella companies and supply chains
- Agencies and clients may be liable for unpaid tax
- Contractors still decide status with small companies
- Greater need for clear contracts and workforce planning
- Transparency is critical to avoid compliance risk
Enforcement is increasing, even though the core rules remain the same.
Key takeaways
- Inside IR35: higher rate, lower take-home
- Outside IR35: more control, more risk
- 24-month rule does not determine IR35 status
- 2026 brings more enforcement and accountability
- Strong workforce planning helps retain key talent