Umbrella vs PAYE vs Ltd Company Calculator
Compare your estimated take-home pay across three common contractor working models for 2025/26 or 2026/27. Enter your contract rate to see a side-by-side breakdown of income tax, National Insurance, corporation tax, and dividend tax — and find out which model puts the most money in your pocket.
Typical contractors work 220 days per year
Umbrella company weekly fee (typically \u00A315\u201350/week)
Annual allowable business expenses (equipment, travel, etc.)
Annual accountant fees (typically \u00A3800\u20131,500/year)
Employee pension contribution as % of qualifying earnings
PAYE
£60,277
Effective rate: 31.5%
Best option
Umbrella
£51,648
Effective rate: 41.3%
Ltd Company
£59,267
Effective rate: 29.0%
Employed directly — standard income tax and NI
Effective rate: 31.5%
Via umbrella — margin and employer NI from your rate
Employer NI comes from your contract rate, not on top
Effective rate: 41.3%
Own company — salary + dividends structure
Effective rate: 29.0%
Working inside IR35?
If your contract is caught by IR35, the umbrella and Ltd columns won't apply. Use our IR35 Calculator instead.
How Does Each Model Work?
PAYE Permanent
You're a regular employee. Your employer pays you a salary and handles tax through PAYE. Employer's NI is paid on top of your salary — it doesn't reduce your pay. Simple, stable, but no tax flexibility. Holiday pay, sick pay, pension, and employment rights included.
Umbrella Company
The umbrella acts as your employer. Your client pays the umbrella your contract rate. The critical difference: employer's National Insurance (15% above £5,000 from April 2025) and the umbrella's margin come out of your contract rate — not on top of it. This means your gross salary is significantly less than your contract rate. Many contractors don't realise this until they see their first payslip.
Limited Company (Outside IR35)
You run your own company. The most tax-efficient model: take a small director's salary (typically £12,570 — your Personal Allowance) to pay no income tax on it, then extract remaining profit as dividends after corporation tax. Dividends are taxed at lower rates than income. However, you need to be genuinely outside IR35, handle your own admin (or pay an accountant), and take on the responsibilities of running a company.
Which Model Should You Choose?
The right model depends on several factors: your IR35 status (if inside, umbrella or PAYE are your only options), your admin tolerance (a Ltd company requires bookkeeping, filing, and accountancy), your career stage (newer contractors may prefer umbrella simplicity), your rate level (the Ltd company advantage grows significantly with income), and your risk appetite (PAYE and umbrella offer more employment protection; Ltd companies carry more personal responsibility).
Frequently asked questions
Which is better — umbrella or limited company?
If you're outside IR35, a Ltd company almost always gives higher take-home pay because dividends are taxed at lower rates. However, you take on admin, accountancy costs, and director responsibilities. If inside IR35, umbrella and PAYE are broadly similar.
Why is umbrella take-home lower than PAYE?
Because employer's NI (15% above £5,000) and the umbrella margin come from your contract rate. In PAYE, your employer pays NI on top of your salary. In an umbrella, it's deducted before you get paid. On a £400/day contract, this can mean £10,000+ less per year.
What is the optimal director salary for a limited company?
Most accountants recommend £12,570 (the Personal Allowance). You pay no income tax and no employee NI (since salary equals the Primary Threshold). Your company pays employer NI of about £1,136 on the amount above the £5,000 Secondary Threshold — but this is a deductible business expense.
How do dividend tax rates change in 2026-27?
The basic rate rises from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. The additional rate stays at 39.35%. This narrows the tax advantage of taking dividends versus salary, making the Ltd company model slightly less beneficial from April 2026.
Do I need to register for VAT?
You must register for VAT if your taxable turnover exceeds £90,000 in a 12-month period. This calculator does not include VAT — it compares income tax, NI, and dividend/corporation tax only.
Sources
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