Limited company or umbrella
Updated 7 November 2026
IR35 mostly decides this for you. Inside, you go through an umbrella. Outside, you can choose, and at £500 a day for 220 days a limited company leaves you about £3,400 a year more than an umbrella at the same rate. Whether that is worth the extra paperwork is the real decision.
The umbrella
You sign an employment contract with the umbrella. The agency pays it the assignment rate and the umbrella turns that into a payslip. Its margin comes off first, often quoted as a weekly fee. Then employer National Insurance at 15% above £5,000, and the apprenticeship levy of 0.5% if the umbrella’s pay bill is over £3 million, come out of what is left. The remainder is your gross pay. Income tax and employee NI (8% between £12,570 and £50,270, then 2% above) come off that through PAYE as normal.
Holiday pay is usually rolled into the rate. You will be auto-enrolled into a pension unless you opt out. Your admin is a timesheet and a payslip: no company accounts, no corporation tax return, no VAT.
The price is that every pound is taxed as salary and the employer costs are funded from your rate.
The limited company
Your company invoices and the money is the company’s. You take a salary, commonly £12,570, and the company pays employer NI on it at 15% above £5,000. Expenses, pension contributions and an accountant’s fee come off before tax. Corporation tax is 19% up to £50,000 of profit, 25% from £250,000, and a sliding scale in between. What is left can be paid as dividends, taxed at 10.75%, 35.75% and 39.35% after a £500 allowance, with no National Insurance.
Once turnover in any rolling 12 months passes £90,000 you must register for VAT. The company then charges 20% on invoices and passes it on. That does not change what you keep, though the flat rate scheme can leave a small surplus.
The admin is real. There are accounts and a corporation tax return every year, with the tax due nine months and one day after the period end. Invoices must carry the company number and, if registered, the VAT number. Most contractors pay an accountant £1,000 to £1,800 a year to do the bulk of it.
The numbers at £500 a day
Over 220 days, outside IR35 through a limited company with a £12,570 salary and £2,000 of expenses, you keep about £68,988. That is roughly 63% of the £110,000 billed.
Through an umbrella at the same £500 assignment rate with a £25 weekly margin, the employer costs bring gross pay down to about £94,935 and you keep about £65,620.
The company wins by about £3,400. The £2,000 of expenses in its figure is roughly an accountant’s fee, so the comparison is fair on costs.
Rates are rarely the same both ways, though. Agencies often uplift an inside rate by 10% to 20% to cover employer NI, and at £550 a day through the umbrella the gap closes and may reverse. Price the actual offers, not the headline rate.
When to use a company
You are outside IR35 and expect to stay that way for more than a few months. You want to leave profit in the company in a good year, which defers dividend tax, or make large pension contributions from the company. You have real business costs to put through. And you are happy to deal with a year-end and an accountant, or at least to pay one.
When to use an umbrella
You are inside IR35, which settles it for that contract. Or the assignment is short and you do not want to open and close a company around it. Or you are trying contracting before committing. Or you simply do not want the admin and will pay a few thousand a year to be rid of it.
An umbrella is a different deal from a company rather than a worse one. You are employed, but the employer’s costs come out of your rate. For an inside contract it is the straightforward way to be paid.