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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.
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:
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: