A side-by-side comparison of umbrella companies and limited companies for UK contractors, with real 2026/27 tax figures so you can see exactly what you keep.
When you work through an umbrella, you become an employee of the umbrella company rather than of the end client. The umbrella invoices your agency or client for your work, receives the gross payment, deducts employer NI, employee NI, income tax, the apprenticeship levy (where applicable), and their own margin fee (typically £15–£35 per week). You receive a net pay slip — exactly like a permanent employee.
You have no company to maintain, no annual accounts to file, and no payroll to run. The trade-off is that you pay more tax and have limited control over your finances.
With your own limited company, you are both director and shareholder. The company invoices clients, pays corporation tax on its profits (19% small profits rate for 2026/27 on profits up to £50,000), and you extract income through an optimal salary (£12,570 — the personal allowance) plus dividends taxed at just 10.75% at the basic rate.
You must maintain proper accounting records, file annual accounts with Companies House, submit a corporation tax return, and run payroll for your salary. An experienced contractor accountant handles all of this for you.
| Factor | Umbrella Company | Limited Company |
|---|---|---|
| Tax efficiency | Low — full income tax + NI on gross | High — salary + dividends structure |
| Corporation tax | N/A | 19% on profits up to £50,000 |
| Dividend tax (basic rate) | N/A | 10.75% (2026/27) |
| Admin burden | None — umbrella handles everything | Annual accounts, CT600, payroll, confirmation statement |
| Allowable expenses | Very limited — only travel & subsistence where HMRC’s supervision, direction or control (SDC) rules allow | Wide range: equipment, software, home office, training, professional subs, pension contributions |
| IR35 relevance | Not applicable — already taxed as employment | Must demonstrate outside IR35 for tax benefit |
| Setup time | Same day | 1–3 days (Companies House) |
| Running costs | £15–£35/week umbrella margin | Accountancy fees from £19.99/month |
| Legal liability | Umbrella employs you — they carry employer obligations | Limited liability — your personal assets are protected |
| Holiday & pension rights | Statutory entitlements apply (paid from your gross) | You control pension contributions (employer contributions are tax-deductible) |
| VAT registration | Umbrella handles VAT | Voluntary below £90,000 threshold; mandatory above |
| Best for | Short contracts, inside-IR35, first-time contractors | Contracts >£30,000/year, outside IR35, long-term contracting |
| Annual Contract Value | Umbrella Take-Home | Ltd Co Take-Home | Ltd Saving |
|---|---|---|---|
| £40,000 | £30,500 | £33,400 | +£2,900 |
| £60,000 | £42,800 | £48,100 | +£5,300 |
| £80,000 | £52,400 | £59,200 | +£6,800 |
| £100,000 | £61,500 | £70,900 | +£9,400 |
| £120,000 | £68,800 | £80,200 | +£11,400 |
Figures assume: outside IR35, £5,000 allowable expenses claimed in the Ltd, optimal £12,570 salary, 2026/27 tax rates, no student loan, basic pension. Umbrella figures assume a £25/week margin fee.
Run your own scenario with our free calculators: Ltd vs PAYE tax calculator and Ltd vs sole trader calculator. For a detailed consultants’ comparison, read our post on limited company vs sole trader for consultants in 2026.
Even if your current contract is inside IR35, it may be worth keeping your limited company open if you expect future contracts to be outside IR35, or if you work for multiple clients with a mix of inside and outside determinations. Closing and reopening a company has costs and admin overhead. Discuss your specific situation with a specialist contractor accountant before making a decision. For a full guide on IR35 and how it affects your structure, see our IR35 guide for UK contractors. If you have already been determined inside, our inside IR35 options guide walks through every option.
Here is the typical process (for the full 10-step guide with SIC codes, bank comparisons and common mistakes, see our dedicated limited company setup guide for contractors):
At AccTek, we handle steps 2–6 for you. The whole process is typically complete within two weeks, and we run it alongside your existing umbrella arrangement so there is no gap in work or pay. See our contractor accountant hub for the full onboarding process, or if you are with another accountant, read our guide on changing accountants.
ICAEW-regulated and led by Godwin Pinto ACA, AccTek provides honest, numbers-based advice on whether a limited company or umbrella is right for your specific situation. We do not push one structure over another — we show you the real take-home numbers and let you decide.
We work with IT contractors, freelancers and consultants, CIS contractors and gig economy workers across the UK.
Is a limited company always better than an umbrella?
Not always. If your contract is inside IR35, the tax advantage of a limited company largely disappears and an umbrella may make more sense to avoid the admin burden. For short contracts under three months, the overhead of maintaining a limited company may outweigh the savings. For most contractors earning above £30,000 on outside-IR35 contracts, however, a limited company is significantly more tax-efficient.
Can I use both an umbrella and a limited company at the same time?
Yes. Some contractors run inside-IR35 contracts through an umbrella and outside-IR35 contracts through their limited company simultaneously. This gives you the tax efficiency of a limited company where available and the simplicity of an umbrella where IR35 requires it. Your accountant ensures both are reported correctly.
How much do I save with a limited company?
On a £60,000 contract outside IR35, you typically save around £5,300 per year compared to an umbrella arrangement using 2026/27 tax rates. At £100,000 the saving grows to over £9,000. Use our Ltd vs PAYE tax calculator for your exact figures.
What expenses can I claim through a limited company that I cannot through an umbrella?
Through a limited company you can claim equipment, software, home office costs, training, professional subscriptions, accountancy fees, professional indemnity insurance, and employer pension contributions. Through an umbrella you are generally limited to travel and subsistence where HMRC’s supervision, direction or control rules allow — and many umbrella workers cannot claim even these. See our full allowable expense checklist.
How quickly can I set up a limited company?
Company formation via Companies House takes as little as 24 hours online (£12). Setting up a business bank account, payroll and accounting software typically takes 1–2 weeks. AccTek handles the entire process for you as part of onboarding.
What happens to my umbrella holiday pay when I switch?
Any accrued but untaken holiday pay should be paid out by your umbrella company when you leave. Check your umbrella contract for their specific terms. Some umbrellas “rolled up” holiday pay was included in every payment, in which case there may be nothing outstanding. Review your pay slips or ask your umbrella company to confirm your balance before switching.
Do I need to tell HMRC when I switch from umbrella to limited company?
You do not need to notify HMRC about leaving the umbrella — the umbrella handles your final P45. When your limited company is incorporated, Companies House automatically notifies HMRC, who will register you for corporation tax and send your company UTR. Your accountant registers you as an employer for PAYE and handles all ongoing HMRC filings.
Get a free, no-obligation comparison of your take-home pay under both structures — based on your real contract rate and expenses.
