Umbrella vs PAYE vs Ltd Company Calculator

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 of the two contracting routes: 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 salary, and nothing comes off the top of your rate for employer NI beyond the small amount due on the director's salary itself. 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.

How the pension is treated

A comparison is only fair if all three routes put the same amount aside. The contribution you enter is sized once, as a percentage of qualifying earnings (£6,240–£50,270), and the same pound amount is then paid on every route — as an employee contribution on PAYE and umbrella, and as a matched employer contribution paid by your own company out of pre-corporation-tax profit on the Ltd route. That is what a director actually does: an employer contribution is deductible against corporation tax and carries no National Insurance on either side, which makes the Ltd route the cheapest of the three per pound of pension. Take-home stays cash in your pocket, so the contribution still comes out of it — but it is excluded from the effective rate, because money you saved is not money you paid in tax. The one deliberate asymmetry: an umbrella also has to pay the statutory 3% employer contribution out of your assignment rate, so the umbrella pension pot ends up slightly larger than the other two.

Why PAYE can still show the highest figure

Enter the same number for all three and direct PAYE usually comes out on top. That is not a quirk of the calculator — it is the employer NI point above. A permanent salary of £88,000 costs your employer roughly £12,000 more than that in NI, paid on top; a £400/day contract worth £88,000 has to cover the equivalent out of the same pot. So the comparison is only like-for-like if you treat the PAYE column as "the permanent salary I'd need to be offered", not as the same contract taken three ways. Contractors choosing between umbrella and a limited company should compare those two columns with each other.

One more thing surprises people around the £100,000 mark. Between £100,000 and £125,140 of taxable income the Personal Allowance tapers away, giving a 60% marginal rate (62% with employee NI). PAYE hits that at £100,000 of contract value; the limited company route only hits it once salary plus dividends reaches £100,000, which takes roughly £131,000 of contract value because corporation tax comes out first. Between those two points PAYE is taxed at 62% at the margin while the Ltd route is not, so the gap between them closes — and then reopens above about £600/day once the Ltd route enters the taper too.

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 advantage over an umbrella is fairly flat across day rates rather than growing with them, and it narrows once your salary plus dividends passes £100,000 and the Personal Allowance starts tapering), and your risk appetite (PAYE and umbrella offer more employment protection; Ltd companies carry more personal responsibility).