Umbrella company vs limited company in 2026/27
If the client says the role is inside IR35, an umbrella is usually your only sensible option. If it is outside, a limited company keeps more — at the cost of admin and an accountant. The numbers first, then the trade-offs.
Take-home at three day rates (220 days, £20/week umbrella margin, £2,500 company costs, £12,570 salary, all profit as dividends)
| Day rate | Invoiced | Umbrella (inside IR35) | Limited (outside IR35) | Difference |
|---|---|---|---|---|
| £300 | £66,000 | ≈ £43,550 | ≈ £47,950 | ≈ £4,400 |
| £500 | £110,000 | ≈ £65,650 | ≈ £68,750 | ≈ £3,100 |
| £700 | £154,000 | ≈ £82,300 | ≈ £87,300 | ≈ £5,000 |
Run your own rate in the IR35 calculator. The gap is smaller than it was before 2023 (corporation tax to 25%, dividend rates up twice) — the limited company's real advantages now are pension flexibility, expenses and retaining profit in the company.
Umbrella: what you get and what to check
- You are an employee of the umbrella: PAYE, holiday pay (often rolled up), statutory sick and maternity pay, auto-enrolment pension, no year-end accounts.
- The assignment rate must cover the umbrella's margin, employer NI (15%) and the apprenticeship levy before your gross pay — ask for a written illustration.
- Check: FCSA or Professional Passport accreditation; margin as a fixed weekly fee; no "same-day payment" charges; salary-sacrifice pension offered; holiday pay shown separately. From April 2026 the recruitment agency is jointly liable for the umbrella's PAYE, which has pushed out most rogue schemes.
Limited company: what you get and what it costs
- Salary plus dividends, company pension contributions with no NI, allowable expenses, VAT flat-rate scheme, the option to leave profit in the company and take it later (or on closure with Business Asset Disposal Relief at 14%, rising to 18% in April 2026).
- Costs: accountant £80–£150/month, insurances (PI, PL, employers'), your time for invoices, bookkeeping, confirmation statement, year-end accounts and corporation tax return.
- Risk: if HMRC later decides an outside-IR35 contract was inside, the liability sits with the fee-payer for medium/large clients — but with your company for small clients.
Rule of thumb
Inside IR35, or a contract under six months: umbrella. Outside IR35 for a year or more, or you want to build a pension fast: limited company. Mixed years happen — many contractors keep the company dormant while on an inside role.
Rates and thresholds for 2026/27, checked against GOV.UK on 20 September 2026. England, Wales and Northern Ireland. Not tax advice.