Umbrella vs Limited Company
The choice between umbrella and limited company affects your take-home pay, administrative burden, and IR35 exposure. An umbrella company employs you and handles PAYE, while a limited company gives you more control and tax planning opportunities but requires more administration.
How Umbrella Companies Work
An umbrella company acts as your employer. Your client pays the umbrella, which deducts employer NI, income tax, and employee NI, then pays you the remainder as salary. The key downside is that employer NI (13.8%) comes out of your fee first, significantly reducing your take-home pay. However, umbrellas are simple to use and have no IR35 risk since you are already employed.
Frequently Asked Questions
Is a Ltd company always better than an umbrella?â–¾
Not always. If your contract is inside IR35, you will be taxed similarly to an umbrella employee anyway, making the Ltd company's additional admin (accountancy fees, VAT returns, annual filings) not worthwhile. Ltd companies are most advantageous when operating outside IR35, where you can use the salary/dividend extraction strategy.
What are the hidden costs of a Ltd company?â–¾
Typical costs include accountancy fees (£100-£200/month), professional indemnity insurance (£300-£600/year), Companies House filing fee (£13/year), and your time spent on admin. You should also factor in the cost of IR35 insurance or contract reviews if working outside IR35.
What expenses can I claim through a Ltd company?â–¾
Allowable expenses include travel to client sites (if outside IR35), equipment, software, training related to your work, home office costs, professional subscriptions, and accountancy fees. All expenses must be wholly and exclusively for business purposes.
Calclypso Editorial Team
Tax calculations verified against HMRC 2025-26 rates. Last updated: April 2026. This calculator is for estimation purposes only.