How Much Money Does IR35 Really Cost You?

In this article we will look at how much you would typically pick up if you are an employee earning £100,000 per year compared with how much you would pick up if you were a contractor turning over £100,000 (working through a limited company), where all the revenue is caught by IR35.
Employee Calculation
Salary = £100,000
Tax Code = 603L (this is a typical tax code)
Employees NI = £4,403
Income Tax = £30,624
Net Annual Income = £64,972
Contractor Calculation
Limited Company Revenue = £100,000
Employers NI = £8,820
Employees NI = £4,224
Income Tax = £23,493
Net Annual Income = £63,463
Difference between the two net incomes = £64,972 - £63,463 = £1,509
Therefore, as a contractor caught by IR35, and earning £100,000 per year, you will be £1,509 worse off than an employee earning the same amount.
In fact, the situation is actually slightly worse than this because, as a contractor working through a limited company, you will have to pay accountancy fees, which will typically be about £1,500 per year. This will reduce the contractor's pickup to about £62,000, which is about £3,000 less than the equivalent employee.
Outside IR35
If you are outside IR35, drawing a salary of £6,000 per year (the national minimum wage), the figures are:
Limited Company Revenue = £100,000
Employers NI = £69
Employees NI = £59
Income Tax = £0
Corporation Tax = £19,096
Additional Tax on Dividends = £10,121
Net Annual Income = £70,655
Again, you would need to deduct accountancy fees from this figure, which would knock it down to about £69,000.