Umbrella vs limited company — how they actually work

Contractors usually settle this question early in their careers, and plenty get it wrong. This guide isn't about tax theory — it's about how each structure works week to week, so you can see which one matches how you actually want to operate.

How you get paid

Umbrella company: the umbrella invoices your agency, deducts employer costs, its margin, and your PAYE tax and NI — then pays your net salary. You get a payslip every time, just like any employee.

Limited company: your company invoices the client or agency. You withdraw money as a small salary (PAYE) and dividends when there's profit. You decide when and how much to take out.

What it costs to run

Cost	Umbrella	Limited company
Margins / accountant	£15–£30/week flat	£90–£150/month accountant
Insurance	Included	You buy it (PI, PL, EL)
Software & admin	Included	Bookkeeping, banking, registered office
Employer NI	Funded from your assignment value	On your company's payroll (Employment Allowance may cover it)
Corporation tax	n/a	19% small profits / 25% main rate

The weekly reality

As an umbrella employee your week is: submit a timesheet → agency approves → umbrella pays you. Tax, NI, pension, holiday pay and insurance all happen in the background. You can switch contracts or agencies without changing anything.

As a limited company director your week adds: chasing invoices, logging expenses, updating your bookkeeping, VAT returns (quarterly), payroll for yourself, and an annual cycle of accounts, Corporation Tax and confirmation statements. It's manageable — but it is a part-time job on top of your contract.

Setup and closing down

Joining an umbrella takes minutes: sign an employment contract, give your bank details, send your onboarding docs to your agency. Leaving is just notice plus a P45.

A limited company takes hours to register, plus accountant setup, business bank account, VAT and PAYE registration. Leaving isn't instant either — you close the company, or keep it dormant with ongoing filing obligations. If your contracting career is uncertain, this is a real commitment.

Tax efficiency — the honest version

Outside IR35, a limited company can be more tax-efficient: Corporation Tax on profit, then dividends taxed at 10.75%–39.35% after a £500 allowance. But the gap narrows once you add accountant fees, insurance and your own time — and it disappears entirely inside IR35, where all income is taxed as employment income anyway.

Try both sides with your own numbers in our IR35 calculator — inside vs outside, including running costs.

Which should you pick?

• Short-term, uncertain or inside IR35? Umbrella. Low commitment, instant setup, all rights included.
• Long-term, outside IR35, and you want to build a business? Limited company. More tax planning, more responsibility.
• Not sure? Start with an umbrella — you can always switch later. Going the other direction is slower and more expensive.

Whichever you choose, the umbrella provider matters. Get your free quote and we'll match you with compliant providers — or read umbrella vs limited: which is the best option for me? for the decision-focused version.