Worker guides · For UK contractors choosing between umbrella and Ltd · Last reviewed 2026-05-08

Umbrella vs limited company - UK contractor take-home compared

Umbrella employment (inside IR35 or by choice) and limited company contracting (outside IR35) produce materially different take-home for the same headline assignment rate. The difference comes from where employer NI, apprenticeship levy, and dividend tax fall.

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Umbrella - what comes out before you see it

From the assignment rate, the umbrella deducts: employer NI (13.8% above the secondary threshold), apprenticeship levy (0.5%), umbrella margin (typically £15 to £25 per period), and any holiday pay accrual policy. The remaining figure becomes your taxable gross. Income tax and employee NI then come out.

Limited company - what comes out before you see it

Through your Ltd, the assignment is paid in full to the company. The company pays corporation tax (currently 25% on profits above £50,000, marginal rate between £50,000 and £250,000, 19% below £50,000). After CT, you pay yourself a small salary (often around the secondary NI threshold to avoid employer NI) plus dividends. Dividends are taxed in your personal tax return at 8.75% basic, 33.75% higher, 39.35% additional rate.

Worked example at £500/day, 220 days per year

Gross assignment: £110,000. Outside IR35 via Ltd, after corporation tax and personal dividend tax, take-home is in the region of £75,000 to £80,000 depending on dividend strategy. Inside IR35 via umbrella, take-home at the same headline rate is in the region of £62,000 to £67,000. The gap is roughly £10,000 to £15,000 per year. Adjust for accountant fees, your own pension contributions, and whether you can fully utilise the personal allowance.

Risks and overheads of each

Ltd: you bear company admin, accountant fees (often £100 to £150 per month), and IR35 review responsibility for any future engagements. Umbrella: simpler but financially worse at the same headline rate; check the umbrella is FCSA or APSCo compliant to avoid scams.

FAQs

Can I switch from umbrella to Ltd mid-engagement?

Only if the engagement is genuinely outside IR35. The end client's status determination dictates the route. Switching solely for tax reasons without changing the substantive working relationship is risky.