Umbrella vs limited company — which is best for you?

Contractors have three ways to get paid: their own limited company, self-employment, or an umbrella company. For most, the real choice is limited company vs umbrella — and the answer changed significantly when the off-payroll (IR35) rules were extended to the private sector. Here's how to decide.

What is a limited company?

A limited company is a separate legal entity. You're its director and shareholder, contracts are signed between the company and clients, and profits belong to the company — which pays Corporation Tax before you extract money as salary and dividends.

• Limited liability: your personal assets are protected if the business fails.
• Tax planning: combine a small salary with dividends, both of which have tax-free allowances.
• Admin: annual accounts, Corporation Tax returns, VAT, payroll and a self-assessment — usually with an accountant.

What is an umbrella company?

An umbrella company employs you. You sign an employment contract with the umbrella, it contracts with your agency, and all your income is paid as salary through PAYE — with holiday pay, a workplace pension and insurance included. Your only admin is submitting a timesheet.

Side-by-side comparison

	Limited company	Umbrella company
Status	Director & shareholder	Employee
Setup	Hours/days to register, plus accountant	Instant — just sign
Tax	Corporation tax + income tax on salary/dividends	PAYE on all income
Admin	Accounts, VAT, payroll, self-assessment	Timesheet only
Employment rights	None	Holiday pay, sick pay, pension
IR35	Only works outside IR35	IR35-safe by design
Insurance	You buy it	Included
Leaving	Company must be closed or kept dormant	Give notice, get a P45

When a limited company wins

• Your contract is outside IR35 — dividends let you keep more than PAYE would.
• You plan to contract long-term and can stomach the admin.
• You want to build a business beyond yourself — hire staff, take on multiple income streams.

Remember the tax costs stack up: Corporation Tax at 19% (small profits rate), then dividend tax of 10.75%–39.35% on top. The gap between a limited company and an umbrella is smaller than it used to be.

When an umbrella company wins

• Your contract is inside IR35 — a limited company then offers no tax advantage and just adds admin.
• You're on short or uncertain contracts and don't want to register and later close a company.
• You want employee rights: holiday pay, sick pay, maternity/paternity cover.
• You'd rather spend your evenings doing anything except bookkeeping.

IR35 considerations

If your end client has assessed your contract as inside IR35, the money you earn is treated as employment income no matter how you structure it. In that scenario, a limited company gives you the same tax with more paperwork — which is why most inside-IR35 contractors go umbrella.

Use our IR35 calculator to see the actual inside-vs-outside difference for your day rate.

The verdict

Outside IR35 + long-term + happy with admin? A limited company is usually more tax-efficient. Everything else? An umbrella company is the lower-risk, lower-effort choice — and the provider you pick determines whether it's good value.

Not sure which side of IR35 you're on? Start with a quote anyway — we'll help you work out your position and match you to a compliant provider either way.