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How much will working inside IR35 cost me?

How does working inside IR35 impact my earnings?

Q. It’s looking very likely that my current client will take a short-sighted approach to IR35 reform and assess me as inside the legislation on 6th April. I’ve always worked outside IR35 and consider myself a genuine contractor, but it seems I have little choice in the matter or power to dispute my client’s view. Naturally, I want to continue taking home the same amount if I work inside the rules, so by how much should I attempt to raise my date rate?  

A. Contractors working inside IR35 are deemed ‘employees for tax purposes’ and therefore subject to PAYE taxes, just like an employee. Roughly speaking, this can amount to contractors taking home anywhere between 20% and 30% less in earnings, given Income Tax and National Insurance Contributions will be deducted from your invoice by the party that pays your fees, from 6th April. 

Needless to say, the cost of operating under the legislation has a big impact on a contractor’s take-home earnings. This is why many independent workers who are facing the prospect of being forced inside IR35 are considering their options as reform approaches.

While some clients might be willing to accommodate an increase in your day-rate, the reality is, many businesses will simply decline. Should this be the case, it could be worthwhile to insist that your client conducts a thorough review of your IR35 status instead, assuming that you are confident your engagement belongs outside the rules. 

As of April, you won’t be completely powerless over your IR35 status when engaged in the public sector or by medium and large private sector businesses. When your client determines your IR35 status, they will be required to provide you with a Status Determination Statement (SDS), which will outline why a particular IR35 decision has been made. If you disagree with your client’s reasoning, you will be able to challenge this through the ‘client-led resolution disagreement process’. However, given this is led by the client, how much success you’ll have in overturning the initial determination remains to be seen. 

If, like a number of financial services businesses, it will be a policy of your client’s to only engage contractors inside IR35 or via umbrella companies (where IR35 doesn’t apply), it may prove difficult to convince them to place your engagement outside IR35. However, that’s not to say these businesses won’t reconsider their stance when the dust settles.

Therefore, if you can’t negotiate a rate rise or successfully challenge an incorrect assessment, it may be worth thinking about sourcing another project. Through the work Qdos is carrying out, we are confident that many private sector firms will be ready to engage contractors outside IR35 when reform lands.

This answer was provided by IR35 specialist, Qdos Contractor.

By Contractor Doctor


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7 thoughts on “How much will working inside IR35 cost me?”

  1. Helen

    The reply doesn’t even remotely address the question asked???

  2. John

    With regard to the Client declining to increase the day rate to accommodate the higher tax bill for a PAYE position, the real question is what happens to the VAT cost that the Client will no longer have to pay?

    The cynics among us could conclude that the Clients will exploit the fact THEY get to make the determination and force legitimate service providers onto PAYE, on the same rate, then pocket the VAT saving for an instant 20% saving. Albeit, they will have to pick up employers NI but overall they cut their wage bill and we pay more tax.

    ‘Taking back control’ was a prominent phrase in another recent debate, well with IR35 this is the reality.

    • Margaret G

      The problem is that the Client won’t pay employers NI & tax: The contractor will have to pick up the bill for both employers and employees NI & Tax without any of the benefits of employment.

      This is the biggest farce of inside IR35 as the contractor is not an employee, but is deemed one by the government.

  3. Jamie Cumberland

    If you go through an umbrella company there will be VAT however if they give you a fixed cost for a 12month contract there isn’t so a bump should be viable … but getting it is another story !!

  4. Maria Griffin

    I have been quoted 60% of my pay will go to tax,NI and umbrella fees. The biggest contribution goes to employers national insurance but yet you dont quote this ??
    What must I pay Employers NI when I am not the employer

    Alos the agency has said that I can only go with umbrella companies they are contracted to

    Seems I will be working to pay NI ,agency and umbrella fees…what a total farce

  5. Steve

    Agencies have a very restricted preferred suppliers list (2 or 3 umbrellas) so you won’t be able to use the same umbrella company for different contracts. That loses you one of the main advantages of working through an umbrella. Go Agency PAYE and save the umbrella fee.

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