The comparison only exists if the engagement is OUTSIDE IR35. Inside it, a limited company gains you nothing on tax, because the fee-payer deducts PAYE from the fee before it reaches your company, and the umbrella is simply the tidier way to be paid. Outside it, the two routes diverge, and on £250 a day across 220 worked days the limited company route keeps £41,030.73 against the umbrella's £37,587.13 on the same £55,000: a gap of £3,443.60, before the cost of running the company and before any risk.
The limited company route, worked
£55,000 of turnover. Pay yourself a salary at the Personal Allowance, £12,570, which carries no Income Tax and no employee National Insurance, but does carry employer National Insurance of £1,135.50 at 15% of the £7,570 above the £5,000 secondary threshold, because a company whose only employee is its director cannot claim the Employment Allowance. Take £2,000 of genuine business expenses. That leaves £39,294.50 of profit, Corporation Tax at the 19% small profits rate is £7,465.96, and £31,828.55 is available as dividends. Dividend tax at the 2026/27 rates, £500 allowance then 10.75% in the basic band, is £3,367.82. Net: £41,030.73.
The umbrella route, worked on the same number
£55,000 as an assignment rate rather than turnover. A £25 a week margin over 44 weeks is £1,100. Employer National Insurance of £6,347.40 and the Apprenticeship Levy of £236.58 come out of what is left, setting gross pay at £47,316.02. Your own Income Tax and National Insurance on that leave £37,587.13. Notice where the money goes: the umbrella's own charge is £1,100 of a £17,412.87 difference between the assignment rate and your net, and the rest is employment cost and your own tax.
What the gap costs to collect
£3,443.60 a year, against which: an accountant at roughly £1,000 to £1,500 a year for a contractor company, Companies House filing, a corporation tax return, VAT if you cross the threshold, insurance, and the administrative time. It is still usually positive at this rate and clearly positive above it, because the umbrella's costs scale with the rate while the company's fixed costs do not. Below about £200 a day the arithmetic narrows to the point where the admin is not worth it for most people, which is the honest reason many contractors on modest rates stay on an umbrella even outside IR35.
The risk that is not in either column
A limited company outside IR35 is a status POSITION, and if HMRC successfully challenges it the deemed employment payment is charged with interest and possibly penalties, against you or, for engagements since the off-payroll reforms, against the fee-payer. An umbrella carries no such exposure because it is employment from the start. So the real comparison is not £41,030.73 against £37,587.13, it is £41,030.73 with a status to defend against £37,587.13 with nothing to defend. Where the determination is genuinely outside and the contract and working practices support it, that is a good trade. Where it is marginal, it is not.
What this calculator assumes, said out loud
220 worked days, a salary at the Personal Allowance, £2,000 of expenses, no VAT flat rate benefit, no pension contribution from either route, no other income, England, Wales or Northern Ireland rates, and the 2026/27 tax year. Change any of those and the gap moves: an employer pension contribution from the company is the single biggest lever, because it is deductible for Corporation Tax and carries no National Insurance, and it narrows the case for taking dividends at all. Scotland changes the salary side but not the dividend side, because dividend rates are UK-wide.
Questions people ask about umbrella vs limited company calculator
Is a limited company better than an umbrella?
Outside IR35, usually, on money: £41,030.73 against £37,587.13 on a £250 a day rate over 220 days. Inside IR35 it is not, because PAYE is deducted before the fee reaches the company and the umbrella is simply simpler.
How much more does a limited company keep?
About £3,443.60 a year at £250 a day, before accountancy and administration. The gap widens with the rate, because the umbrella's employment costs scale with it while a company's fixed costs do not.
Why does the director salary stop at the Personal Allowance?
Because above it the salary meets Income Tax and employee National Insurance, while dividends do not. Employer National Insurance is still payable on the £7,570 above the secondary threshold, and a single-director company cannot claim the Employment Allowance against it.
Does the comparison change inside IR35?
Yes, it disappears. Inside IR35 the fee-payer deducts Income Tax and National Insurance before paying your company, so the company adds administration without adding take-home.