Umbrella vs limited company: which keeps more of your money?
Two contractors on the same day rate can take home very different amounts. Here's how umbrella and limited-company pay actually differ, and when each one makes sense.
What this assumes
Applies the small profits rate up to the lower limit, the main rate above the upper limit, and marginal relief in between. If you enter associated companies, the limits are divided across them. It assumes a standard 12-month accounting period and doesn't handle ring-fence profits, capital allowances timing or group relief.
Source: HMRC — Corporation Tax rates
This is an estimate to help you plan, not financial, tax or legal advice.
How corporation tax actually works
It’s a common surprise that company profit isn’t taxed at one flat rate. There’s a small profits rate on profits up to the lower limit, the main rate on profits above the upper limit, and a stretch in between where marginal relief applies — so the effective rate climbs gradually rather than jumping. This calculator handles all three and tells you the effective rate you’re really paying.
A worked example
A company with £40,000 of taxable profit sits under the lower limit, so it pays the small profits rate — £7,600 at 19%. A company with £120,000 of profit lands in the marginal-relief band: the main rate applies, reduced by relief, giving roughly £28,050 and an effective rate around 23.4%. Above £250,000, it’s simply the main rate. Enter your own profit above to see where you fall.
The associated companies trap
If you control more than one company, the profit limits are shared between them. Two associated companies each get half the limits — so a profit that would have sat comfortably in the small profits rate on its own can be pushed into marginal relief or the main rate. If that applies to you, enter the number of associated companies so the limits are adjusted.
Where this fits
Corporation tax is only the first step in getting money out of a company. After it’s paid, what’s left can be drawn as dividends, which carry their own personal tax — that’s the mechanism behind the umbrella vs limited company comparison and the IR35 take-home calculator. Together they show the full journey from contract income to money in your pocket.
General information, not tax advice. Corporation tax has many edge cases — capital allowances, group relief, non-standard accounting periods — so confirm with an accountant. See HMRC’s corporation tax guidance.