An AI contractor outside IR35 at £700/day (220 days = £154,000) takes home approximately £108,000–£115,000/year via a limited company using an optimised salary/dividend split. This compares to ~£90,000–£95,000 inside IR35 — a difference of £15,000–£20,000/year. Outside IR35 status depends on the working arrangement, not the role or day rate. Each contract must be assessed individually.
Based on 220 working days/year. 25% corporation tax. Optimised salary/dividend split. 2026-27.
| Item | Amount |
|---|---|
| Contract income (Ltd co turnover) | £154,000 |
| Accountancy / company running costs | −£3,000 |
| Net profit | £151,000 |
| Corporation tax (25%) | −£37,750 |
| Post-tax company profit | £113,250 |
| Salary (at personal allowance threshold — minimal NI) | £12,570 |
| Dividends (from post-tax profit) | ~£100,000 |
| Dividend tax (£500 allowance, then 33.75% higher rate) | ~£19,000approx |
| Income tax on salary | £0within personal allowance |
| Estimated take-home | ~£107,000–£112,000 |
Pension tip: Many AI contractors contribute £20,000–£40,000/year to a company pension via employer contributions, directly from pre-tax profits. This reduces corporation tax at 25% and is far more efficient than taking the same amount as dividends (taxed at up to 39.35%). Total effective take-home including pension fund value can exceed £130,000–£140,000 at £700/day.
220 days/year. Outside IR35 via limited company, optimised salary/dividend split. Inside IR35 with pension salary sacrifice.
| Day Rate | Annual Value | Inside IR35 Take-Home | Outside IR35 Take-Home | Difference |
|---|---|---|---|---|
| £500/day | £110,000 | ~£65,000 | ~£78,000 | ~£13,000 |
| £600/day | £132,000 | ~£77,000 | ~£92,000 | ~£15,000 |
| £700/daymedian | £154,000 | ~£90,000 | ~£108,000* | ~£18,000 |
| £800/day | £176,000 | ~£100,000 | ~£124,000 | ~£24,000 |
| £1,000/day | £220,000 | ~£120,000 | ~£150,000 | ~£30,000 |
* £700/day outside IR35 figure assumes salary/dividend split without employer pension contributions. With a £20,000–£30,000 employer pension contribution, effective total take-home (including pension fund) rises to £125,000+. All figures are estimates. Consult our IR35 calculator for your precise figures.
Outside IR35 requires real independence: right of substitution (you can send someone else to do the work), no mutual obligation of employment, and control over how the work is done — not just what is delivered. Misclassification carries significant penalties including back-tax, interest and potentially criminal prosecution. Public sector clients (NHS, MOD, HMRC, DWP) are almost always inside IR35 by default.
A limited company can make employer pension contributions directly from pre-tax profits, reducing the corporation tax bill pound-for-pound and providing a highly tax-efficient way to extract value from the company. The annual allowance is £60,000 for 2026-27. Many AI contractors contribute £20,000–£40,000/year to a company pension, significantly boosting long-term take-home.
A new contract, a new client, or a material change to working practices requires a fresh IR35 determination. Medium and large companies must issue a Status Determination Statement (SDS) before the contract starts. If you are working with a small client (under 50 employees or £10.2m turnover), you can still self-determine your status — but document it carefully with an IR35 contract review.
Use our IR35 calculator to compare inside vs outside take-home for your specific day rate and circumstances.