Worker guides · For IT contractors in the UK · Last reviewed 2026-05-08

IT contractor payslip guide - inside vs outside IR35

IR35 status determines whether your engagement is taxed as employment or as a service supplied through your limited company. The financial difference is substantial and the payslip looks completely different in each case.

PayslipIQ provides educational information and estimated calculations only. It does not provide tax, legal, financial, payroll, accounting, pension, benefits or employment advice. Always verify your payslip, tax code, deductions and take-home pay with your employer's payroll department, HMRC, your pension provider, a qualified accountant, tax adviser or another appropriately qualified professional.

Outside IR35 - your own Ltd

Outside IR35 engagements pay your limited company. You then take a small salary plus dividends from the company. The 'payslip' you see is the small salary; dividends are paid as separate distributions. Corporation tax is paid by the company before dividends are paid. This route remains generally more tax-efficient than inside IR35 for most contractors but requires accountant support and personal admin.

Inside IR35 - umbrella

Inside IR35 engagements through an umbrella company deduct employer NI, apprenticeship levy, and umbrella margin from the assignment rate before paying you. Your taxable gross is what is left. Then PAYE income tax and employee NI come out. Net take-home is materially lower than equivalent outside IR35 work at the same headline rate.

Inside IR35 - deemed employment via the end client

Some end clients run inside-IR35 engagements through their own payroll, paying the contractor directly as a deemed employee. The payslip looks like a normal employee payslip. Pension auto-enrolment may apply.

Status determination statements

For medium and large clients, the end client (or recruiter) issues a Status Determination Statement (SDS) explaining the IR35 conclusion. You have a right to challenge the SDS through the client-led disagreement process. Read the SDS carefully before accepting an engagement.

FAQs

Inside IR35 - is umbrella the only option?

No. Some contractors take the assignment as a PAYE employee of an agency or end client. The financial outcome is similar to umbrella but the structure is cleaner and the recipient is the end employer rather than a third-party umbrella.

Why do umbrellas charge a margin?

Umbrellas process payroll, calculate deductions, and provide some employment rights. They charge a weekly or per-pay-period margin (typically £15 to £25). Check this is shown clearly on your payslip.