Umbrella or limited company
The same day rate, run through both structures, with every deduction shown on each side.
Umbrella
- Assignment rate
- £0
- Umbrella margin
- £0
- Employer NI
- £0
- Apprenticeship levy
- £0
- Gross salary
- £0
- Income tax
- £0
- Employee NI
- £0
- Take-home
- £0
Limited company
- Revenue
- £0
- Salary
- £0
- Employer NI on salary
- £0
- Company costs
- £0
- Corporation tax
- £0
- Dividends drawn
- £0
- Personal tax on both
- £0
- Take-home
- £0
The day rate is not a salary
An agency quotes an assignment rate: what the client pays for your time. Under an umbrella that single figure has to cover employer National Insurance at 15% above £5,000, the apprenticeship levy, and the umbrella's own margin, all before a salary exists. Only what remains is paid to you, and then taxed as ordinary employment income.
That is why a £500 day rate does not feel like £500 a day. Nothing improper is happening, but the deductions are real and they are large, and an agency quoting the assignment rate alongside a "take-home" estimate is comparing two different things.
How a limited company differs
The same revenue arrives in a company. You pay yourself a modest salary, deduct genuine business costs, and the company pays corporation tax on what is left: 19% up to £50,000 of profit, 25% above £250,000, and an effective 26.5% on the band between as the small profits rate is clawed back. What survives can be drawn as dividends, which carry no National Insurance at all.
That National Insurance saving is the whole advantage, and it is why the salary is usually set near the personal allowance rather than higher. It narrowed in April 2026, when dividend rates rose two percentage points to 10.75% and 35.75%, so the gap is smaller than contractor folklore suggests.
Status decides this before money does
None of the above matters if the contract is inside IR35. Then the engagement is treated as employment for tax, the limited company gives you no advantage, and most agencies will require an umbrella regardless of what you would prefer. Establish status first. This comparison only makes sense for genuinely outside-IR35 work.
There is also work a company brings that a spreadsheet does not show: annual accounts, a corporation tax return, VAT if you register, confirmation statements, and a real obligation to keep the money straight. Some people find that a fair trade for a few thousand pounds. Others emphatically do not.
What would change the answer
Company pension contributions are the big one: they are a deductible business expense and escape both corporation tax and personal tax, which often beats every other option here. The VAT flat rate scheme can add a little. Retaining profit in the company across years instead of drawing it all smooths income across tax bands. And if you have other income, the dividend arithmetic changes completely. Treat this as the starting comparison, not the final one.
Common questions
- Can I just choose the one that pays more?
- Often not. If the contract is inside IR35, the client or agency will usually insist on an umbrella or deemed employment, and a limited company gives you no tax advantage anyway. Status comes first, take-home second. This tool assumes the choice is genuinely open to you.
- Why is my umbrella take-home so much less than my day rate suggests?
- Because the rate the agency quotes is the assignment rate, not a salary. Employer National Insurance at 15%, the apprenticeship levy and the umbrella's margin all come out of it before any salary exists. Those are legitimately deducted from the pot, though it rarely feels that way on the first payslip.
- Can my company claim the Employment Allowance?
- Not if you are the sole director and the only person paid above the secondary threshold, which is the typical contractor setup. That rule was written specifically to exclude one-person companies, so this calculator does not apply the allowance.
- Why take a small salary and the rest as dividends?
- Dividends carry no National Insurance, so a salary around the personal allowance plus dividends usually beats a large salary. The gap narrowed in April 2026 when dividend rates rose two points, and a salary still buys State Pension qualifying years, so the optimum is not always the smallest possible salary.
- What is not in this comparison?
- The running costs of a company beyond what you entered, the time spent on it, VAT and the flat rate scheme, pension contributions made by the company, which are very tax efficient, and the fact that a limited company can retain profit across years rather than drawing it all. All of these can move the answer.