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Ltd Company or Umbrella for IT Contractors in 2026/27: What You Actually Take Home

A worked 2026/27 take-home comparison on a £100,000 contract, after April’s dividend tax rise. A six-minute read.

By Umang · Published October 2026 · ← All guides

TLDR: On a £100,000 contract outside IR35, a limited company still leaves you roughly £4,800 a year better off than an umbrella in 2026/27, even after April’s dividend tax rise. Inside IR35, most of that advantage disappears and an umbrella is usually the simpler answer.

Since dividend tax went up in April, the line doing the rounds on contractor forums and LinkedIn is “Ltd companies aren’t worth it anymore.” It is a confident claim. It is also one almost nobody backs up with an actual calculation.

So here it is. One contractor, one contract, both routes, using the 2026/27 rates.

The assumptions

A £500 day rate for 200 days, so £100,000 of contract income. Outside IR35. No other income, no student loan, no pension contributions, England, Wales and Northern Ireland rates. Nothing clever, just the two routes side by side.

Route 1: umbrella company

The line most contractors never see broken out: on an umbrella, employer’s National Insurance comes out of your assignment rate before it ever becomes your gross pay. In practice, you are paying both sides of the NI bill.

Route 2: your own limited company

The salary is set at £12,570 to use the full personal allowance with no employee NI. Why that level still beats a lower salary for most sole directors is covered in our guide to paying yourself from a limited company in 2026/27.

The gap, and what April actually changed

£4,837 a year in the limited company’s favour. Roughly £400 a month.

Run the same numbers at last year’s dividend rates (8.75% and 33.75%) and the gap would have been about £6,100. So yes, April’s rise took around £1,300 off the advantage on this contract. It did not take away the other £4,800. “The gap got smaller” and “there is no gap” are different statements, and the difference between them is worth thousands a year.

When an umbrella genuinely makes more sense

1. You are inside IR35. On an inside IR35 contract the fee payer deducts tax and NI as if you were employed, so the limited company loses most of its advantage on that income and keeps all of its admin. Go umbrella.
2. The contract is short. Setting up a company, running it for a few months and then dealing with the tail costs real time and money. As a rough rule, below about six months of expected contracting, an umbrella usually wins on practicality even outside IR35.
3. You do not want the admin. A limited company means a business bank account, bookkeeping, annual accounts, a Corporation Tax return, a confirmation statement and possibly VAT. Your accountant handles most of it, but not all of it. If £400 a month is not worth that to you, that is a legitimate call, not a mistake.

What this comparison leaves out

This is one income level, not a universal answer. Employer pension contributions paid straight from company profit widen the gap further in the limited company’s favour, and are often the strongest lever of all. A higher day rate pushes more of your dividends into the higher rate band, and past £100,000 of personal income the personal allowance starts to taper on both routes. Your own numbers will move. The method does not.

The takeaway

The dividend tax rise is real and worth knowing about before you plan next year’s take-home. But “Ltd companies aren’t worth it anymore” is a post, not a calculation. Run the numbers for your own day rate, your own IR35 status and your own contract length before you change anything.

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