Guide
Limited company vs umbrella: which pays more?
Real take-home figures at common day rates, what each route costs you in admin, and when IR35 makes the choice for you.
If you’re outside IR35, you can usually choose between running your own limited company and being paid through an umbrella company. The limited company almost always leaves you with more money, but the gap is smaller than many people expect once you count the running costs, and the umbrella is far less work. This guide puts real 2026/27 numbers on both, so you can decide whether the difference is worth it for you.
How each route works
Umbrella company
The agency pays your full day rate to the umbrella. The umbrella takes its margin, then pays the employer’s costs out of what’s left: employer National Insurance at 15% on salary above £5,000, and the 0.5% apprenticeship levy. Whatever remains is your salary, taxed through PAYE like any job. You get a payslip, holiday pay is accrued, and there’s nothing to file except, sometimes, a Self Assessment return.
The catch is that the employer costs come out of your rate. On £115,000 a year, employer NI, the levy and the margin take £15,779 before income tax and employee NI are worked out.
Limited company
Your company invoices the agency or client. It pays you a small salary, usually £12,570, and pays corporation tax on the profit (19% up to £50,000, rising to 25% with marginal relief in between). You then take the rest as dividends, which are taxed at 10.8% in the basic-rate band and 35.8% in the higher-rate band, after a £500 dividend allowance.
Dividends carry no National Insurance, which is where most of the saving comes from. In exchange, you run a company: an accountant, a business bank account, annual accounts, a corporation tax return, a confirmation statement and your own Self Assessment.
The numbers at common day rates
| Day rate | Contract value | Limited company | Umbrella | Ltd keeps more |
|---|---|---|---|---|
| £400 | £92,000 | £60,015 | £56,556 | £3,459 |
| £500 | £115,000 | £70,876 | £68,105 | £2,771 |
| £600 | £138,000 | £80,507 | £75,828 | £4,678 |
| £750 | £172,500 | £92,169 | £90,759 | £1,410 |
Assumptions: 5 days a week for 46 weeks, £3,000 a year of company running costs (accountant, insurance, software), a £12,570 director’s salary with all remaining profit paid as dividends, an umbrella margin of £25 a week and no pension contributions. England, Wales and Northern Ireland tax bands; no student loan.
The gap doesn’t grow in a straight line: it rises and falls as your rate goes up. Dividends move from the basic-rate band into the higher-rate band, corporation tax moves into marginal relief, and at the top your personal allowance starts to disappear, and each of these hits the two routes differently. That’s why it’s worth running your own rate rather than relying on a rule of thumb.
What the table leaves out
- Your time. A limited company takes a few hours a month of bookkeeping and paperwork, plus year-end deadlines. Most of the accounting is done by your accountant, but you’re still the director and legally responsible.
- Keeping money in the company. The table assumes you take every pound out. If you leave profit in the company and draw it in a lower-income year, the limited company comes out further ahead.
- Pension contributions. Employer pension contributions from a limited company avoid corporation tax and NI, and salary sacrifice through an umbrella avoids income tax and NI. Both narrow your tax bill; the limited company route is usually more flexible.
- Employment rights. Through an umbrella you’re an employee, so you get statutory sick pay, holiday pay and, if you qualify, statutory parental pay. As a limited company director you don’t.
- Gaps between contracts. A limited company can carry money from a good year into a quiet one. An umbrella only pays you while you’re working.
When IR35 decides for you
If a contract is inside IR35, the fee-payer deducts tax and NI as if you were an employee, so most of the limited company’s advantage disappears and you still carry its running costs. That’s why most inside-IR35 contractors use an umbrella. The IR35 calculator shows the inside day rate you’d need to match an outside one.
Choosing a compliant umbrella
Pick an umbrella accredited by the FCSA or Professional Passport, and ask for a Key Information Document before you sign. It has to show the margin and every deduction, so you can check it against the umbrella calculator. Be wary of anyone promising take-home well above what the calculator shows: unusually high pay through an umbrella is a common sign of a tax avoidance scheme, and HMRC can come after you for the tax later.
So which should you choose?
If you’re outside IR35, expect to contract for more than a year, and are comfortable with some admin, a limited company usually pays for itself. If you’re inside IR35, between contracts, trying contracting for the first time or simply want a payslip and no paperwork, an umbrella is the simpler and safer choice. Either way, run your own figures, and talk to an accountant before setting up a company.
This guide is general information, not financial or tax advice. Figures are estimates for England, Wales and Northern Ireland; speak to an accountant before making decisions.