Umbrella vs Limited Company Calculator

Umbrella vs limited company: which pays you more?

If you contract or freelance in the UK, two structures dominate: working through an umbrella company (where you are an employee taxed under PAYE) or running your own limited company (where you draw a small salary plus dividends). This umbrella vs limited company calculator shows your estimated 2026/27 take-home pay for both, side by side, using verified HMRC income tax, National Insurance, dividend and corporation tax rates. It is built for contractors, consultants, locums and freelancers who want a quick, honest comparison before choosing how to get paid. Enter your annual contract income (day rate multiplied by the number of days you expect to work, or your total invoiced figure), any allowable expenses, an optional pension percentage and your umbrella's margin. The tool then deducts the umbrella's margin, employer National Insurance and the apprenticeship levy on the umbrella side, and a tax-efficient salary, expenses, corporation tax and dividend tax on the limited side, before showing the annual and monthly cash you keep, the percentage of income retained, and which option wins.

How it works

The umbrella route treats your full assignment rate as the cost to the agency. From that, the umbrella deducts its margin, then employer (secondary) National Insurance at 15% on pay above £5,000 and the 0.5% apprenticeship levy — both legally costs of employment that come out of your rate. What is left becomes your gross taxable salary, on which you pay income tax (20% / 40% / 45% above the £12,570 personal allowance) and employee National Insurance (8% then 2%).

The limited company route starts from your turnover. You take a tax-efficient director's salary of £12,570 (covered by the personal allowance, no income tax), deduct allowable expenses and any company pension, then pay corporation tax on the remaining profit — 19% up to £50,000, 25% above £250,000, with marginal relief (fraction 3/200) in between. The after-tax profit is paid out as dividends, taxed at 2026/27 rates of 10.75% (basic), 35.75% (higher) and 39.35% (additional) after the £500 dividend allowance.

Worked example

A contractor invoices £100,000 for the year, has £3,000 of expenses, no pension, and a £1,200 umbrella margin.

• Umbrella: after the £1,200 margin, employer NI and the 0.5% levy reduce the pot to about £86,190 gross taxable pay. Income tax (~£21,908) and employee NI (~£3,734) then leave around £60,548 take-home (about 60.5% of the rate).
• Limited company: a £12,570 salary plus £3,000 expenses leave about £83,295 profit; corporation tax with marginal relief is roughly £18,323, leaving about £64,971 of dividends. After ~£13,749 dividend tax, take-home is around £63,793 (about 63.8%).

In this case the limited company keeps roughly £3,245 more per year. The gap widens at higher rates and narrows (or reverses) at lower incomes once accountancy fees are factored in. Inside IR35, the limited company is taxed almost identically to umbrella, so the convenience of umbrella usually wins.

Frequently asked questions

Is a limited company always better than umbrella?

No. A limited company is usually more tax-efficient at higher day rates and when working outside IR35, but it carries accountancy fees, Companies House filing, and admin. At lower incomes, or inside IR35, the simplicity of an umbrella often makes it the better net choice once costs and time are counted.

Why does the umbrella deduct employer National Insurance from my rate?

Under an umbrella, you are an employee. Your assignment rate is the cost to the agency, which includes employment costs. The umbrella lawfully deducts employer NI (15% above £5,000) and the 0.5% apprenticeship levy before calculating your gross pay, so your headline rate is not the same as your salary.

What salary should a limited company director take in 2026/27?

Many contractors take a salary of £12,570 — the full personal allowance — so it is free of income tax, then draw the rest as dividends. This calculator uses that assumption. The optimal split depends on whether you have other income and whether the company can claim the Employment Allowance.

Does this calculator account for IR35?

It assumes you are outside IR35 for the limited company figures. If your contract is inside IR35, your limited company income is taxed broadly like employment (PAYE), wiping out most of the dividend advantage — in which case the umbrella result is the more realistic comparison.

Source: Rates verified against HMRC and GOV.UK for 2026/27 — Income Tax rates, Tax on dividends, Corporation Tax rates.

Related tools: Corporation Tax Calculator, Dividend Tax Calculator, Optimal Salary & Dividend Calculator, Salary Calculator, All UK Calculators.