Your role and assumptions
This model keeps the tax side intentionally simple. It ignores VAT, pension design, travel relief edge cases and complex share structures.
Highest first-pass annual take-home
PAYE
Difference between top and bottom route: £0
What this means
The route with the highest first-pass cash outcome is not automatically the best route. IR35, admin effort, accounting cost and employer pension design can all matter more than a small difference in take-home.
Umbrella vs Agency PAYE vs Limited Company — UK contractor comparison
Three main structures for UK contractors. The right one depends mostly on IR35 status, contract length, and admin tolerance.
Figures use 2026/27 UK tax-year rates and thresholds. Verify your specific situation against HMRC, FCA or MoneyHelper guidance before deciding.
Worked examples — see the maths on real numbers
The take-home from a £450/day rate through an umbrella company (inside IR35) and through a limited company (outside IR35), with every assumption and step shown.
James — IT contractor, £450/day, inside IR35 contract
| Day rate (the assignment rate paid to the umbrella) | £450 |
| Days worked | 220/year |
| Gross contract value | £99,000 |
| IR35 status | Inside |
| Umbrella margin (illustrative) | £1,800 a year (£150 a month) |
| Also assumed | 2026/27 rates; standard £12,570 Personal Allowance; England, Wales or Northern Ireland tax bands; the umbrella passes on the 0.5% Apprenticeship Levy; no pension contributions, student loan or expenses; pay spread evenly over the year |
The maths:
- Money the umbrella has to work with: £99,000 − £1,800 margin = £97,200. That has to cover James's gross pay plus the employer costs on that pay
- Employer NI is 15% of pay above £5,000 and the Apprenticeship Levy is 0.5% of pay, so gross pay = (£97,200 + 15% × £5,000) ÷ 1.155 = £97,950 ÷ 1.155 = £84,805.19
- Check: employer NI (£84,805.19 − £5,000) × 15% = £11,970.78; levy £84,805.19 × 0.5% = £424.03; £84,805.19 + £11,970.78 + £424.03 = £97,200
- Income tax on £84,805.19: £37,700 × 20% = £7,540, plus (£84,805.19 − £50,270) × 40% = £13,814.08. Total £21,354.08
- Employee NI: (£50,270 − £12,570) × 8% = £3,016, plus (£84,805.19 − £50,270) × 2% = £690.70. Total £3,706.70
- Take-home: £84,805.19 − £21,354.08 − £3,706.70 = £59,744.41, about 60% of the £99,000 contract value
Result: On a £450/day inside-IR35 contract James takes home about £59,700 a year through an umbrella company. His gross pay is about £84,800, not £99,000, because employer NI, the Apprenticeship Levy and the umbrella's margin (about £14,200 in total) come out of the assignment rate before he is paid. If he stays in the umbrella's workplace pension, the employer's pension contribution comes out of the assignment rate as well. Margins differ between umbrella companies; the key information document from the agency shows the deductions that will actually apply.
Same £450/day, but contract is OUTSIDE IR35
| Gross contract value | £99,000 |
| Structure | Personal Service Company (Ltd) |
| Salary taken (NI threshold) | £12,570 |
| Running costs (illustrative) | £1,800 a year (accountancy and similar) |
| Dividends | all profit left after Corporation Tax |
| Also assumed | 2026/27 rates; a sole director with no other employees, so no Employment Allowance; no other income; no pension contributions or student loan; VAT ignored |
The maths:
- Employer NI on the salary: (£12,570 − £5,000) × 15% = £1,135.50. The salary itself is covered by the £12,570 Personal Allowance and is not above the £12,570 employee NI threshold, so no income tax or employee NI is due on it
- Profit before Corporation Tax: £99,000 − £1,800 − £12,570 − £1,135.50 = £83,494.50
- Corporation Tax: profits between £50,000 and £250,000 get marginal relief, so £83,494.50 × 25% = £20,873.625, less (£250,000 − £83,494.50) × 3/200 = £2,497.5825, leaves £18,376.04 to the nearest penny (an effective rate of about 22%)
- Available for dividends: £83,494.50 − £18,376.04 = £65,118.46
- Dividend tax: the first £37,700 sits in the basic-rate band, where £500 is covered by the dividend allowance and £37,200 is taxed at 10.75% = £3,999; the other £27,418.46 is taxed at 35.75% = £9,802.10. Total £13,801.10
- Take-home: £12,570 + £65,118.46 − £13,801.10 = £63,887.36, about 65% of the £99,000 contract value
- Total taken in employer NI, Corporation Tax and dividend tax: £1,135.50 + £18,376.04 + £13,801.10 = £33,312.64
Result: Outside IR35 the take-home is about £63,900, against about £59,700 inside IR35 through an umbrella: a gap of about £4,100 a year on these assumptions. The gap is narrower than the headline tax rates suggest because the company pays Corporation Tax (an effective 22% here) before the dividends are taxed at 10.75% and 35.75%. The figure assumes every pound of profit is paid out in the year; leaving profit in the company or making employer pension contributions changes the result, and a limited company brings accountancy costs, filing duties and IR35 risk that an umbrella does not.
Figures use 2026/27 UK tax-year rates and thresholds. Always verify against your specific payslip or tax statement before acting.
Editorial accountability
Open Trust Centre →
How UK Tax Drag holds itself to account
Pages are checked against the primary sources listed on each page and reviewed by the Editor; corrections are logged in the changelog. Pages are drafted with the help of AI tools (how AI is used). No affiliate revenue. No sponsored content. No paid placements.
UK Tax Drag is an independent publication by Finsolve Consulting Limited, not affiliated with or endorsed by HMRC, GOV.UK or any government body.