Umbrella vs Limited Company Calculator 2026/27
Enter your annual contract income to compare both routes: umbrella (employment with employer NI and margin deducted) versus a limited company paying salary plus dividends. The two routes tax the same contract income through entirely different mechanics, which is why the gap between them can run to thousands of pounds a year.
How it works
UMBRELLA: you become the umbrella’s employee. From your assignment income, the umbrella deducts its margin and the employer costs — 15% employer National Insurance above £5,000 — before your gross salary is set; you then pay normal income tax and employee NI on that salary through PAYE.
The employer NI deduction is the part contractors underestimate. Because the 15% is charged on the salary itself, roughly £15 of every £115 of assignment funds above the thresholds goes to employer NI before your gross pay even exists — about 13p in the pound — and that is before your own income tax and employee NI are applied to what remains.
LIMITED (outside IR35): the company earns the revenue, pays you a small salary (typically £12,570 — attracting £1,135.50 employer NI, since single-director companies cannot claim the Employment Allowance), pays 19–25% Corporation Tax on the remaining profit, and distributes the rest as dividends taxed at 10.75%/35.75%/39.35%.
A worked slice of the limited route: Corporation Tax runs at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between. On the dividend side the first £500 is covered by the dividend allowance, then the basic rate applies — so £10,000 of dividends taken within the basic band costs (£10,000 − £500) × 10.75% = £1,021.25 of dividend tax.
The comparison assumes you are OUTSIDE IR35 for the limited route — inside IR35, the limited company loses its advantage because the fee-payer deducts PAYE anyway. Accountancy costs, expenses, VAT flat-rate gains and pension contributions shift the result further; the calculator lets you add company expenses to see their effect.
The most common mistake is comparing the two routes on headline rate alone: the umbrella quote is before employer NI and margin, while the limited figure depends on how profit is split between salary, retained funds and dividends. The second is forgetting the fixed overheads of running a company — accountancy alone typically costs £1,000–1,500 a year, which erodes the limited advantage on smaller or shorter contracts.
What the result includes and excludes: both routes are computed with the full 2026/27 tax, NI, Corporation Tax and dividend arithmetic, but accountancy fees, business insurances, VAT effects, student loan repayments and pension contributions are left out. Pensions in particular can overturn the ranking — employer contributions from a limited company are extremely tax-efficient.
FAQ
Which pays more — umbrella or limited company?
Outside IR35, a limited company usually nets meaningfully more: on £80,000 of contract income the gap is typically several thousand pounds a year, because Corporation Tax plus dividend tax on the profit route totals less than the employer NI plus full PAYE of the umbrella route. Inside IR35, or on short contracts, umbrella often wins once you price in accountancy fees (£1,000–1,500/year), admin and insurance.
What changed for umbrella companies in April 2026?
From 6 April 2026, responsibility for operating PAYE on umbrella workers moved from the umbrella to the recruitment agency that contracts with the end client (or the end client itself if there is no agency). The change targets tax-skimming umbrella schemes. Your net pay arithmetic is unchanged if your umbrella was compliant — but expect agencies to be far stricter about which umbrellas they will work with.
Why does the calculator pay a £12,570 salary in the limited route?
It is the sweet spot for most single-director companies: at £12,570 the salary is covered by the personal allowance (no income tax), sits at the employee NI threshold (no employee NI), qualifies as a full state pension year, and is deductible against Corporation Tax. The company does pay £1,135.50 employer NI on it — still worth it, because the salary saves at least 19% CT (£2,388) on the way through.
What costs does this comparison leave out?
Accountancy fees (typically £1,000–1,500/year for a contractor company), business insurances, the umbrella margin beyond what you enter, VAT effects, student loan repayments and pension contributions. Pensions deserve special mention: employer contributions from a limited company are extremely tax-efficient and can beat both routes shown here — factor them in before deciding.
Why does the umbrella deduct employer National Insurance from my rate?
Because in the umbrella model you are the employee and the assignment income has to fund the employer costs as well as your salary. The 15% employer NI above £5,000 comes off before your gross pay is set — roughly £15 of every £115 of assignment funds — along with the umbrella's margin. It is not a hidden fee; it is the same employer NI any employer pays, made visible.
How are dividends from my limited company taxed in 2026/27?
The first £500 falls within the dividend allowance; above that, dividends are taxed at 10.75% in the basic band, 35.75% in the higher band and 39.35% at the additional rate. Dividends are paid from profit that has already borne Corporation Tax at 19–25%, so the true combined rate on company earnings is higher than the dividend rate alone.
Does IR35 status change which route wins?
Decisively. The limited route's advantage depends on being outside IR35 — inside, the fee-payer deducts PAYE from your invoices anyway, so the company structure adds cost and admin without the tax benefit, and umbrella typically comes out ahead. Establish your status for the contract before treating the limited column here as achievable.
Why can't my limited company claim the Employment Allowance?
Companies whose only person on the payroll is a single director are excluded from the Employment Allowance, so the £12,570 salary in the limited route bears the full £1,135.50 of employer NI. The salary still pays its way — it is deductible against Corporation Tax, saving at least 19% (£2,388) — but the allowance cannot be used to wipe out that employer NI bill.