Inside IR35: Umbrella Company or PAYE?
Your contract is inside IR35 — now what? Here's how to choose between umbrella and direct PAYE for 2026/27.
Last updated: April 2026
Key fact: Inside IR35, umbrella and PAYE result in almost identical take-home pay. The umbrella margin (£15–£40/week) is the only meaningful financial difference. The real choice is about convenience and protection.
What Does "Inside IR35" Actually Mean for Your Pay?
When a contract is determined to be inside IR35, HMRC treats you as a "disguised employee." This means:
- Your income is taxed as employment income — standard PAYE income tax rates apply
- Employer NI (15%) is payable on your earnings above £5,000
- Employee NI (8% / 2%) is payable on your earnings
- You cannot pay yourself tax-efficient dividends from a limited company for this income
In practice, this means the tax treatment under umbrella and PAYE is virtually identical. Both result in the same PAYE deductions on the same gross income.
Umbrella vs PAYE Inside IR35
What About a Limited Company Inside IR35?
Operating a limited company while inside IR35 is technically possible, but almost never financially sensible:
- You must apply deemed employment calculations, effectively treating your contract income as PAYE
- You pay employer NI on top of employee NI and income tax — same as umbrella
- You still pay accountant fees (£1,500–£2,000/year)
- There is no dividend advantage on deemed employment income
Most contractors in this situation either wind down their limited company and move to umbrella, or leave the company dormant while using umbrella for inside-IR35 contracts.
Choose Umbrella (Inside IR35) When:
- You work through multiple agencies
- Your agency requires umbrella
- You want professional insurance included
- You want detailed payslip transparency
- Contracts are short or frequently changing
Choose Direct PAYE (Inside IR35) When:
- Single long-term contract with one agency
- Agency offers direct PAYE option
- You want to minimise costs (no margin)
- Agency provides adequate insurance
- Maximising take-home is the priority
Calculate Your Inside IR35 Pay
Our umbrella calculator shows exactly what you take home inside IR35.
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