In this guide, Umbrella Broker explain how a contractor calculator can assist contractors when it comes to making the decision between umbrella vs limited company, so every contractor can make the right choice for them.

Every contractor faces the choice over how they will operate, whether that’s setting up their own limited company or working through an umbrella company. However, it can be difficult to know which route will work the best for you.

To make the choice between umbrella vs limited company, contractors should look at what is the most time efficient and cost-effective option. That’s where a contractor calculator can help.

Calculate your potential take home

Umbrella Companies

Let’s start by looking at umbrella companies. Umbrella companies are typically considered the easy, hassle-free way of contracting.

The umbrella company hires the contractor as an employee of their company. Although the contractor chooses what contracts they work on and when, the umbrella company takes care of the contractor’s tax obligations paying them through the PAYE system, processing their invoices and providing them with statutory benefits enjoyed by all employees including holiday pay, sick pay, maternity and paternity pay and a workplace pension.

In return for these benefits a contractor will pay the company a fee.

Limited Companies

On the other hand, contractors that opt for the limited company route will be required to set up their own limited company and will be self-employed, filing self-assessment tax returns.

This is often viewed as the more tax efficient option due to the fact that contractors can pay themselves a salary and also take payments as dividends which are usually taxed at a lower rate than PAYE.

The drawbacks of setting up a limited company however, are that contractors will have to file often complicated tax returns themselves, sort out their own invoicing and complete all admin tasks associated with running a business.

What’s more, with this option contractors won’t receive statutory benefits since they are not employed.


Another consideration when taking the limited company route is IR35.

Originally applying exclusively to the public sector, as of April 2021, reforms to the legislation will mean that it will also apply to the private sector which will impact thousands of limited company contractors in the UK.

IR35 was initiated to prevent self-employed workers like contractors from working like employees but enjoying the tax and National Insurance benefits experiences by the self-employed.

Under IR35 legislation it is the responsibility of the client to deduct the contractor’s tax and National Insurance contributions before they are paid their fee. This has led to many contractors being wrongly classified under IR35, paying PAYE tax contributions when they didn’t need to.

This is a major drawback of the limited company route.

On the flipside, because umbrella company contractors pay tax through the PAYE system, IR35 does not apply to them, an additional benefit to this way of operating.

Using a Contractor Calculator

Clearly, there’s a lot for contractors to think about when it comes to making the decision. A big factor is how time efficient each option is. As we’ve already mentioned, operating under an umbrella company can save contractors a lot of time as the umbrella company takes care of their tax, invoices and admin. All that’s left is to focus on the contract at hand.

On the other hand, limited company contractors must deal with running a business, sorting out their finances and filing for self-assessment at the same time as working on the project.

As well as how each option works in terms of time efficiency, another important consideration is take home pay.

That’s where a contractor calculator comes in handy.

Limited Company Calculator

To work out which is the best option, first start by calculating how much your take home pay would be under a limited company.

Here, the most cost-effective option is to pay yourself a salary under the National Insurance Contributions threshold, this way you will not be required to pay income tax on this amount.

Then, you can take dividends up to £2,000 which you will not pay tax on. Any further dividends you take will be taxed at 7.5% at the basic rate which is lower than the PAYE rate. If your income exceeds £50,000, further dividends will be taxed at the higher rate of 32.5%.

Umbrella Company Calculator

Now you have a rough idea of how much your earnings will be under a limited company you can compare it with your pay under an umbrella company. This is where an umbrella company calculator comes in to play.

Within the umbrella calculator you can input your contractor rate and you will be able to see a clear breakdown of costs and your take-home pay, including fees paid to the umbrella company, tax contributions and national insurance.

The great thing about an umbrella company calculator is that rather than giving you just one set fee, the calculator will show your take home pay based on what it would be under several different companies. That means contractors can compare and contrast to find a company that will offer them the best deal.

Find the best option for you

Having chosen the best umbrella company and established your take home pay, you can now compare the difference between your income under an umbrella and limited company.

Often contractors will find that they would take home slightly more under a limited company. However it is worth considering that this option does come with drawbacks. After all, limited company contractors have to complete their own tax returns, chase up invoices, do not receive statutory benefits and have the worry of IR35 compliance.

On the other hand, an umbrella company will take care of all these tasks for a relatively small fee.

Let our Umbrella Company Calculator help

If you’ve opted for the umbrella company route, Umbrella Broker’s umbrella company calculator can help you find the best umbrella company for your needs.

Simply enter your details and personal preferences and we will generate a list of the best umbrella companies for you. What’s more, it takes just 60 seconds. Why not see what we can do for you today?

Calculate your potential take home