IR35 Calculator

IR35 Tax Calculator

Summary

Use this fast, easy to use and in-depth tax calculator to see the differences between take home income and deductions for a contracting job. We will illustrate the differences between using an umbrella company to handle payslips, to setting up your own limited company (PSC) and check the tax implications of being inside IR35 or outside IR35.

Background

Contractors have come under more stringent tax legislation in recent years. IR35 rules have been around since the early 2000's but have become tighter with every revision. The most recent updates may affect contractors who use 'Personal Service Companies' as entities for receiving contracting income.

In order to help with decision making and just to outline some of the differences in methods for receiving contracting income, we have produced this fast IR35 calculator.

How To Use

There are three scenarios that will be calculated with just a few details entered by you. You can enter a typical contract's details, such as the start and end dates, the charge rate and your working pattern.

We figure out the length of the contract, taking into account any weekends or bank holidays along the dates and work out your chargeable amounts, expenses and then the varying tax structures.

The calculator will automatically be able to deduce the correct tax year, or multiple tax years if the contract spans more than one. It will then work out scenarios for:

• A contractor who is inside IR35 and paid via an Umbrella Company. The Umbrellla Company will deduct fees, expenses, employers' national insurance and then run payroll on your income. The taxation figures will be logged to produce a summary of this option.
• A contractor who is outside IR35 and paid via their own Personal Service Company. The engaging company will pay the PSC the billed gross chargeable amount and then the PSC will deduct expenses before extracting profits in a tax-efficient manner.
• A contractor who is inside IR35 and paid via their own Personal Service Company. This is the latest option that is due to have major changes. More about this below. (Updated March 2020)

Contractors working within IR35 but choosing to have charges paid to their PSC will, from April 2021, find that the engaging company (fee payer) will be deducting taxes at source before paying their PSC. They will then have the reduced amount as company profit. The fee-payer will allocate a tax code (most likely to be BR/0T) and run the billed amount (minus of VAT) and minus of costs for employers' national insurance, personal income tax and national insurance. The remaining amount is then paid to the contractor's intermediary (PSC).

The updated PSC Inside IR35 calculation is now set so that double taxation does not occur. As the engaging company (fee payer) is deducting income tax etc from the billed amounts, the contractor does not need to deduct any further income taxes, NICs, or dividend taxes (if taking dividends). None of these would need to be recorded on the contractor's self assessment. The PSC does not need to pay any corporation taxes on the received amount. It can deduct the received amount from any profit calculations. The engaging company (fee-payer) will report payments made to the PSC using a 'Full Payment Submission' as part of their own payroll.

For all of these options there are a number of assumptions used:

• * does not account for VAT.
• * assumes no other income in tax year of any other type aside from what is input.
• * for the umbrella company option, pension amounts are based on the amount taken on weekly payslips.
• * input charged rate is daily, as are expenses.
• * umbrella company pays weekly and is assumed to charge £30 per week for its services, however this can be overridden.
• * for contracts spanning across tax years, all figures are apportioned by checking the number of days worked within each tax year and then calculated to individual tax years with both individual and combined totals given.
• * Contractors inside IR35 and using a PSC will have tax deducted at source on their gross billed charge AFTER 'allowable expenses'. The remaining amount is called the 'deemed direct payment'. The employers' NI figure arising from the billed charge is calculated on this 'deemed direct payment' by the engaging company's payroll. What is left over is then subject to income tax and employee national insurance. The remaining amount is then paid over to the PSC, which then has no further tax liabilities (no more income tax, nic, dividend and corporation taxes).
• * For calculation purposes here the PSCs having deduced tax at source is based on an annual tax basis NOT cumulative. However, due to defaulting to tax code 'BR' as per HMRC guidance, no personal allowance is given. For our calculation, wer have used '0T' so no personal allowance is given but all tax bands are utilised rather than just basic rate.
• * Due to the way engaging companies run their payroll for PSCs Inside IR35, no pension or student loan deductions will be made by them - just income taxes/NIC etc. You will likely have to make adjustments via your self assessment to make sure anything missed is brought into alignment.