Limited Company vs Umbrella Company 2026
Choosing between a limited company and umbrella is one of the biggest decisions for UK contractors. Your IR35 status and personal circumstances determine which is best.
Quick Comparison
| Factor | Limited Company | Umbrella |
|---|---|---|
| Best for | Outside IR35 | Inside IR35 |
| Setup | £50-100 + admin | Instant |
| Admin burden | High | None |
| Accountant cost | £100-250/month | £0 |
| Tax efficiency | Higher (outside IR35) | Lower |
| Holiday/sick pay | No | Depends |
| Flexibility | Maximum | Limited |
Take-Home Pay Comparison
£400/day Rate
| Limited Company | Umbrella | |
|---|---|---|
| Annual billing | £88,000 | £88,000 |
| Less: Umbrella fee | - | £3,000 |
| Less: Employer NI | - | £10,200 |
| Less: Accountant | £2,000 | - |
| Less: Insurance | £500 | - |
| Net available | £85,500 | £74,800 |
| Take-home | £64,000 | £54,000 |
Limited company wins by £10,000/year (outside IR35)
Inside IR35 Comparison
If your contract is inside IR35, the calculation changes:
| Ltd (Inside IR35) | Umbrella | |
|---|---|---|
| Annual billing | £88,000 | £88,000 |
| Employer NI (paid by client or you) | £10,200 | £10,200 |
| Admin/Fees | £2,500 | £3,000 |
| Take-home | ~£53,000 | ~£54,000 |
Umbrella is simpler and similar take-home when inside IR35
When to Choose Limited Company
Ideal For
- Outside IR35 contracts: Maximum tax efficiency
- Multiple clients: Business look and feel
- Long-term contracting: Worth the setup effort
- Retaining profits: Can leave money in company
- Higher day rates: Greater tax savings
Requirements
- Form limited company (£50-100)
- Open business bank account
- Register for Corporation Tax
- File annual accounts
- File annual confirmation statement
- Submit VAT returns (if registered)
- Manage payroll for yourself
- Monthly/annual accountant work
When to Choose Umbrella
Ideal For
- Inside IR35 contracts: Simpler than running PSC
- Short contracts: No setup/closedown hassle
- First-time contractors: Learn the ropes
- Minimal admin: Focus on the work
- Employment rights: Holiday pay, pension contributions
How Umbrellas Work
- You find a contract through an agency
- Umbrella employs you
- Agency pays umbrella
- Umbrella deducts tax, NI, fees
- Umbrella pays you as an employee
Umbrella Company Fees
Typical umbrella fees:
- £20-30/week (standard)
- £15-20/week (competitive)
- £30-40/week (with extras)
Avoid:
- Hidden fees
- Unexplained deductions
- "Too good to be true" take-home figures
- Companies promising tax savings
2026 Umbrella Reforms
From April 2026:
- Joint and several liability: Agencies/clients can be liable for unpaid tax
- Better due diligence: End clients checking umbrella compliance
- HMRC guidance: Clearer rules on compliant vs non-compliant schemes
Choose FCSA or Professional Passport accredited umbrellas.
Switching Between Structures
Limited Company to Umbrella
- Complete current contracts through Ltd
- Stop trading through Ltd
- Join umbrella for new inside IR35 contracts
- Keep Ltd dormant or close it
Umbrella to Limited Company
- Form new limited company
- Set up business bank account
- Engage accountant
- Leave umbrella at contract end
- Invoice through Ltd on new contracts
Frequently Asked Questions
Can I use both an umbrella and limited company?
Yes. Many contractors use:
- Limited company for outside IR35 work
- Umbrella for inside IR35 work
What about umbrella holiday pay?
Legitimate umbrellas must provide statutory holiday (28 days). Some roll this into your day rate as "holiday pay advance."
Are umbrella companies safe?
Accredited umbrellas (FCSA, Professional Passport) are safe. Avoid "mini umbrella" schemes or those promising unusual tax savings.
My agency insists on umbrella. Can I refuse?
The agency cannot force you, but they may not work with your limited company. Consider finding agencies that accept PSCs.
Related Calculators
- Limited Company Calculator - Ltd take-home pay
- Umbrella Calculator - Umbrella take-home pay
- IR35 Calculator - Inside vs outside comparison