Contractor Take-Home: Ltd vs Umbrella
Frequently Asked Questions
A limited company gives you full control of your business structure, can be tax-efficient outside IR35, but requires more administration. Umbrella means you're an employee of the umbrella company — simpler but generally lower take-home pay.
If you're working inside IR35 (deemed employment), the difference in take-home between limited company and umbrella is minimal. Many contractors choose umbrella for inside IR35 engagements to simplify administration.
Being inside IR35 effectively makes you pay PAYE tax and NIC on your contract income, with only a 5% expenses allowance. This typically means 20-30% lower take-home vs outside IR35 through a limited company.
Typical fees range from £15-£40/week, though some umbrella companies charge more. Always confirm the fee is a fixed weekly/monthly charge — some umbrella schemes with higher 'profit sharing' may be disguised tax avoidance.
Since April 2016, umbrella employees under supervision, direction, or control cannot claim travel and subsistence expenses, removing a significant benefit of the umbrella structure.
The employer NIC rate rose from 13.8% to 15% and the secondary threshold fell from £9,100 to £5,000. Umbrella companies pass this cost to contractors, effectively reducing take-home pay.
Yes. Many contractors use different structures for different engagements — limited company for outside IR35, umbrella for inside IR35 or short-term contracts not worth incorporating for.
Some umbrella schemes claim to 'offset' income against a loan or other arrangement to reduce PAYE. These are typically disguised remuneration schemes — avoid them as HMRC actively pursues these cases.
If you pay yourself a salary above the lower earnings limit (£6,396/year in 2025/26), yes. A typical strategy is to pay a small salary equal to the personal allowance (£12,570) and take the rest as dividends.
Companies with profits up to £50,000 pay 19% (small profits rate). Above £250,000, the main rate is 25%. Marginal relief applies between £50,000 and £250,000.
Outside IR35 with lower earnings, a limited company can save significant tax. However, the increased employer NIC from April 2025 and higher corporation tax have reduced the advantage compared to prior years.
Annual accounts, corporation tax returns, confirmation statement, VAT returns (if registered), PAYE/RTI submissions, and bank statements. Directors have legal duties regarding record-keeping.