IR35 vs Umbrella vs Limited Company: Side-by-Side Comparison (2026/27)
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Reviewed by: Andrew Glover, CFA Charterholder · Last reviewed:
Outside IR35 (limited company) pays 20-30% more than inside IR35 or umbrella at the same day rate. Umbrella and inside IR35 pay similarly, with umbrella slightly less due to the weekly margin. A 500/day outside IR35 contract is worth the same take-home as a 650-675/day inside IR35 contract.
This page compares the key differences between outside IR35 (limited company), inside IR35 (deemed employee), and umbrella company contracting. The comparison covers tax treatment, deductions, administrative burden, and take-home pay at various day rates for 2026/27.
Complete Comparison Table: IR35 vs Umbrella vs Limited Company
Key Takeaways
- Outside IR35 (limited company) pays 20-30% more than inside IR35 or umbrella at the same day rate, due to dividend tax efficiency and no employer NI on the full contract value
- Umbrella and inside IR35 are nearly identical in take-home pay, with umbrella slightly lower due to the weekly margin fee (20-30/week)
- A 500/day outside IR35 contract is equivalent in take-home to approximately a 650-675/day inside IR35 contract
- Administrative burden is highest for limited company contractors (accountant recommended) and lowest for umbrella workers
- Scottish contractors face higher tax rates in all scenarios, widening the gap between outside and inside IR35
| Aspect | Outside IR35 (Ltd Company) | Inside IR35 (Deemed Employee) | Umbrella Company |
|---|---|---|---|
| Tax Status | Genuine contractor — business owner | Deemed employee for tax purposes | Employee of umbrella company |
| Tax Collection | Self Assessment + Company Tax Return | PAYE (deducted by fee-payer) | PAYE (deducted by umbrella) |
| Income Tax | On salary only (not dividends) | On full contract value | On full contract value |
| Employee NI | On salary only | 8%/2% on full contract value | 8%/2% on full contract value |
| Employer NI | Not applicable | 15% on earnings above 5,000 | 15% on earnings above 5,000 |
| Corporation Tax | 19-25% on company profits | Not applicable | Not applicable |
| Dividend Tax | 8.75%/33.75%/39.35% above 500 allowance | Not applicable | Not applicable |
| Apprenticeship Levy | Not applicable | 0.5% of total pay bill | 0.5% deducted |
| Umbrella Margin | Not applicable | Not applicable | 20-30/week |
| Expenses | Full range: travel, equipment, home office, training, fees | Limited (pension salary sacrifice only) | Limited (pension salary sacrifice only) |
| Pension Options | Employer contribution from company (tax deductible) | Salary sacrifice (reduces NI + income tax) | Salary sacrifice via umbrella |
| Student Loan | On salary portion only (dividends excluded) | 9% on full contract value above threshold | 9% on full contract value above threshold |
| Annual Accounts | Required (CT600 + Confirmation Statement) | Not required | Not required |
| VAT Registration | May be needed (threshold 90,000) | Not applicable | Not applicable |
| Self Assessment | Required annually | May not be needed (all tax via PAYE) | May not be needed (all tax via PAYE) |
| Employment Rights | None (self-employed) | None (deemed employee only) | Full rights (holiday, sick, maternity, redundancy) |
| IR35 Risk | HMRC can investigate IR35 status | No IR35 risk (already inside) | No IR35 risk (umbrella employment) |
| Contract Negotiation | Negotiate day rate directly | Need rate uplift to match outside | Need rate uplift to match outside |
| Admin Burden | High — accountant recommended | Low — everything via PAYE | Low — handled by umbrella |
Take-Home Pay Comparison at Different Day Rates
The table below shows estimated annual take-home pay across all three employment types at various day rates, assuming a standard working pattern of 5 days/week, 46 weeks/year, no pension contributions, and no student loan. Scottish rates will differ.
| Day Rate | Outside IR35 (Ltd Co) | Inside IR35 | Umbrella | Uplift Needed for Parity |
|---|---|---|---|---|
| 300/day | 43,000-46,000 | 32,000-35,000 | 31,000-34,000 | +30-35% |
| 400/day | 60,000-64,000 | 46,000-49,000 | 45,000-48,000 | +28-33% |
| 500/day | 77,000-82,000 | 60,000-64,000 | 59,000-63,000 | +25-30% |
| 600/day | 93,000-99,000 | 74,000-79,000 | 73,000-78,000 | +23-28% |
| 750/day | 118,000-125,000 | 95,000-101,000 | 94,000-100,000 | +22-27% |
| 1000/day | 158,000-168,000 | 128,000-136,000 | 127,000-135,000 | +20-25% |
Estimates for 2026/27 tax year. Outside IR35 assumes salary of 12,570 + dividends. Inside IR35 and umbrella include employer NI. Scottish bands will reduce take-home by approximately 2,000-5,000/year. Use the inside IR35 and outside IR35 calculators for precise figures.
When to Choose Each Option
Choose Outside IR35 (Limited Company) if:
- You have a contract that genuinely falls outside IR35 (confirmed by SDS)
- You want to maximise take-home pay (20-30% more than inside IR35)
- You are comfortable with administrative responsibilities or using an accountant
- You have multiple contracts or plan to scale your business
- You can leave profits in the company for future tax planning
Choose Inside IR35 (Deemed Employment) if:
- Your client has determined the contract is inside IR35 via SDS
- You want minimal administrative burden
- The day rate includes a sufficient uplift to compensate for the additional tax
- You prefer a simple single-tax arrangement with no Self Assessment required
Choose an Umbrella Company if:
- Your contract is inside IR35 and you want full employment rights
- You want someone else to handle all payroll and compliance
- You work through multiple agencies and want simplified payroll
- You value having holiday pay, sick pay, and other employment protections
- The umbrella margin (20-30/week) is acceptable for the convenience
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