Inside vs Outside IR35 — Tax Impact Comparison
This is why inside IR35 day rates are typically 15–25% higher than equivalent outside IR35 rates. The contractor is compensating for: (1) employer NI that reduces their effective income, (2) higher income tax on earnings taken as salary vs dividends. For UK businesses: when budgeting an inside IR35 engagement, add 15–25% to the "normal" market day rate.
| Item | Outside IR35 | Inside IR35 | Difference |
|---|---|---|---|
| Gross contract fee (220 days) | £110,000 | £110,000 | — |
| Employer NI deducted by fee payer | None — paid by company | £13,178 (13.8% of contract fee above threshold) | −£13,178 from pool available |
| Effective gross income to contractor | £110,000 | £96,822 | −£13,178 |
| Income tax (20% / 40% / 45%) | £32,432 (via company + salary) | £38,528 (as employee) | −£6,096 additional tax |
| Employee NI (8% / 2%) | £8,059 (salary + dividends mix) | £7,754 (PAYE NI) | Broadly similar |
| Net take-home (approx) | £69,509 (63% of gross contract) | £50,540 (46% of gross contract) | −£18,969 per year |
| Effective outside IR35 day rate to match inside take-home | — | £608/day equivalent required | Contractor needs 22% rate increase inside IR35 |
Status Determination Statement (SDS) — Your Legal Obligations
Blanket determinations are banned: HMRC explicitly prohibits categorising all contractors as inside IR35 without individual assessment. If challenged, a blanket determination is evidence of failure to take "reasonable care" — which shifts liability to you.
The ClickMasters Alternative — Zero IR35 Risk
No SDS required — you engage a company, not an individual contractor
No IR35 determination — the off-payroll rules simply do not apply
No HMRC liability for unpaid income tax or NI
One monthly invoice from ClickMasters — not multiple PSC invoices
ClickMasters handles all PAYE, NI, and pension obligations for our team
ClickMasters eliminates IR35 risk entirely. Our engineers are ClickMasters employees — not contractors through personal service companies. When you engage ClickMasters: