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Methodology

UK Inside vs Outside IR35 Rate Comparison methodology

See the client-cost gap and the inside-scenario deemed payment rate that would match the outside commercial cost. Compare two user-confirmed VAT-exclusive commercial cost scenarios without determining employment status, VAT treatment or worker take-home pay.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: UK small-business planning using your own assumptions.

1. Formulas and units

Official policy scope
policyScope = reviewed HMRC off-payroll working scope

Where

policyScope
HMRC off-payroll working scope boundary (official policy scope)Source: Reviewed official rule · UK off-payroll commercial comparison boundary
Outside-scenario total client cost excluding VAT
outsideTotalClientCostExVat = service fees + outside fixed cost

Where

outsideClientFixedCostExVat
Outside-scenario client fixed cost (GBP/engagement, ex VAT)Source: Business record
outsideTotalClientCostExVat
Outside-scenario total client cost excluding VAT (GBP)Source: Calculated output
Inside-scenario deemed direct payment excluding VAT
insideDeemedDirectPayment = billable days × deemed payment per day

Where

billableDays
Billable days (billable days/engagement)Source: User assumption
insideDeemedPaymentPerDay
Inside-scenario deemed payment per day excluding VAT (GBP/billable day, ex VAT and before worker PAYE deductions)Source: User decision
insideDeemedDirectPayment
Inside-scenario deemed direct payment excluding VAT (GBP)Source: Calculated output
Inside-scenario employer on-cost
insideEmployerOnCost = deemed direct payment × entered employer on-cost rate

Where

insideEmployerOnCostRate
Inside-scenario employer on-cost rate (decimal employer on-cost per GBP of deemed direct payment)Source: Business record
insideDeemedDirectPayment
Inside-scenario deemed direct payment excluding VAT (GBP)Source: Calculated output
insideEmployerOnCost
Inside-scenario employer on-cost (GBP)Source: Calculated output
Inside-scenario total client cost excluding VAT
insideTotalClientCost = deemed direct payment + employer on-cost + inside fixed cost

Where

insideClientFixedCost
Inside-scenario client fixed cost excluding VAT (GBP/engagement, ex VAT)Source: Business record
insideDeemedDirectPayment
Inside-scenario deemed direct payment excluding VAT (GBP)Source: Calculated output
insideEmployerOnCost
Inside-scenario employer on-cost (GBP)Source: Calculated output
insideTotalClientCost
Inside-scenario total client cost excluding VAT (GBP)Source: Calculated output
Inside minus outside client cost excluding VAT
insideMinusOutsideCost = inside total client cost − outside total client cost

Where

insideTotalClientCost
Inside-scenario total client cost excluding VAT (GBP)Source: Calculated output
insideMinusOutsideCost
Inside minus outside client cost excluding VAT (GBP)Source: Calculated output
Inside deemed rate matching outside cost
insideDeemedRateToMatchOutsideCost = (outside cost − inside fixed cost) / days / (1 + on-cost rate)

Where

insideDeemedRateToMatchOutsideCost
Inside deemed rate matching outside cost (GBP)Source: Calculated output
Inside deemed rate threshold state
insideDeemedRateToMatchOutsideCostState = unreachable fixed-cost floor when inside fixed cost exceeds total outside cost

Where

insideDeemedRateToMatchOutsideCost
Inside deemed rate matching outside cost (GBP)Source: Calculated output
insideDeemedRateToMatchOutsideCostState
Inside deemed rate threshold state (closed status code)Source: Calculated output
Inside fixed-cost excess over outside cost
insideFixedCostExcessOverOutsideCost = max(0, inside fixed cost − outside total client cost)

Where

insideClientFixedCost
Inside-scenario client fixed cost excluding VAT (GBP/engagement, ex VAT)Source: Business record
insideTotalClientCost
Inside-scenario total client cost excluding VAT (GBP)Source: Calculated output
insideFixedCostExcessOverOutsideCost
Inside fixed-cost excess over outside cost (GBP)Source: Calculated output

Money inputs and outputs use GBP. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows are evaluated at render time by the same shared engine and visible default fixture.

Calculation and outputs

Example

The worked rows are evaluated at render time by the same shared engine and visible default fixture.

Outside-scenario total client cost excluding VAT
£145,000
Inside-scenario deemed direct payment excluding VAT
£118,800
Inside-scenario employer on-cost
£17,820
Inside-scenario total client cost excluding VAT
£139,620
Inside minus outside client cost excluding VAT
-£5,380
Inside deemed rate matching outside cost
£561
Inside deemed rate threshold state
Reachable within the non-negative rate range
Inside fixed-cost excess over outside cost
£0

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

This compares user-confirmed commercial scenarios; it never determines IR35 status or worker take-home tax.

3. Validation and boundary checks

  • All amounts must be finite and non-negative.
  • Closed scope confirmations fail safely when unsupported.
  • Policy comparators preserve the exact supported authority wording.
  • Display formatting never feeds calculation.

4. Assumptions and source classification

  • Both scenarios use the same engagement and the entered on-cost rate comes from payroll or an adviser.
  • Reviewed source version: 2026-07-16.
  • HMRC: Understanding off-payroll working (IR35): https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
  • HMRC: Deemed employer responsibilities: https://www.gov.uk/guidance/fee-payer-responsibilities-under-the-off-payroll-working-rules

Official dependencies used by this comparison calculator are captured in the Margin101 evidence register and version-acknowledged in this page history. User-entered commercial assumptions remain separate from those official inputs.

5. Limitations

  • No employment-status, worker-tax, take-home-pay or employment-rights conclusion is produced.
  • This is educational decision support, not tax, accounting or legal advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply in United Kingdom and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. Registered official sources block dependent public workflows when their evidence or version acknowledgement is unavailable or invalid. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

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