Contractor Tax Calculator
Compare your contracting tax bill as a limited company versus through an umbrella - Updated for 2026/27
Using the calculator to compare your tax bill as a contractor
Choosing whether to run your contracting business as a limited company or through an umbrella agency is a personal decision, and really depends on your situation. Our free calculator will help you compare how this affects your estimated tax bill and potential take-home pay.
Enter your annual profits to estimate how much tax you’re likely to pay so you can decide which option could save you money. But remember, there might be other reasons why you decide to contract through an umbrella or set up your own company!
Is a limited company or an umbrella more tax-efficient for contractors?
This will vary depending on your circumstances – with pros and cons to both. Operating a limited company often means you can pay yourself an efficient combination of a salary and dividends, set your own rates, claim expenses, and even leave profits in the company for later use.
It gets a bit more complicated if contracts fall within IR35 because income tax and National Insurance will be deducted from your invoice at source. There’s also more admin involved if you run your own company.
Umbrella companies can be a useful alternative if you’re looking to minimise admin and IR35 concerns. They’ll also include standard employee benefits like Statutory Sick Pay, maternity and paternity leave, and holiday pay (although this is funded from your rate). Considerations can include lower take-home pay, additional fees, and fewer opportunities to claim expenses.
FAQs
Your limited company is your own business – you’re the director, you control the finances, and decide how you’d like to be paid. An umbrella agency acts a bit more like an employer. You’ll still have the freedom to choose your own jobs and working patterns, whilst the umbrella processes your pay via their payroll and then chases up your client for payment.
You can’t necessarily avoid it – but you can put measures in place to ensure you’re operating as a contractor rather than risking working as an employee-in-disguise. For example:
- Ensure you have control over your rates, and when you work
- Include the Right of Substitution (RoS) in your contracts, so your limited company can offer a substitute (who isn’t a regular worker for your client) to fill in for you. Your client will pay your company’s invoice, and you will pay the substitute.
- There should be no mutual obligation for the client to offer you further work
If you operate under these rules with every client, you should be able to minimise the risk of being inside IR35.
You’ll be able to claim expenses if your client agrees they’ll reimburse them, but you won’t be able to offset your allowable business expenses against your profits like you can with a limited company. This is particularly important for any costs to visit your client on-site!
In a limited company you’ll invoice the client or agency, and they will pay your business directly (leaving it up to you how to pay yourself from the company). In an umbrella you’ll normally submit a timesheet or similar so they can pay you through payroll and then recover the amount (plus their fee) from the client.
Yes, you’ll be paid through payroll so deductions like income tax and NI are made before payment reaches you.
The majority are – but there are some tax avoidance schemes about. You’ll usually be able to spot them because they offer an unusually high take-home pay. Always take advice first!
Looking for more information?
We have a comprehensive range of free resources available
Quick Tax Saving Tips Guide
Our guide to helping you and your business save money and operate in the most tax efficient way possible.
2 minutes
Contractor Guide
Thinking about becoming a contractor? This guide covers all the factors you will need to consider.
5 minutes
Claiming Business Expenses Guide
The topic of what business expenses you can claim for is a complex one. Let our easy to understand guide explain it for you.
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