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Since 1995, we’ve been providing A1 accountancy services to our clients, steered by our watertight values and principles.



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How Much Does a Contractor Earn?

Unveil the unknown: how much can you earn as a contractor?

For many people the decision to leave traditional employment and pursue a career as a contractor is motivated by a number of factors, such as greater flexibility, having full control over your career path, being able to pick and choose the projects you work on, and the ability to negotiate your rates of pay. But how much you can actually earn as a contractor will depend on the terms and location of your contract and the way that you work. The two most common ways to operate as a contractor are by forming a limited company or employing the services of an umbrella company, and there are advantages and disadvantages to both options. For more information you may want to visit our limited company or umbrella company page.

Contracting through an umbrella company

Many contractors choose to work through umbrella companies, which effectively employ them and deduct their tax and National Insurance contributions at source through the PAYE system. They also charge a margin for providing this service which varies depending on the company used and can either be a percentage of your invoiced fees or a flat rate regardless of how much you earn. Umbrella companies are well suited to contractors who are concerned about keeping on top of their administration tasks as they don’t have to worry about putting money aside for their tax bill or keeping track of their income. However, working under an umbrella company is considered to be the most expensive option and you do not have the same tax planning opportunities that limited company contractors are entitled to and the additional expense of the umbrella company fee depletes the overall amount that you take home. For more information about working through an umbrella company take a look at our umbrella company hub page.

If you decide to work through an umbrella company you will typically take home 60-65% of your contract rate, which has been broken down below. You may also find our take home pay calculator useful if you already have an idea of your daily rate.

Day Rate Take Home
£300 between £180 and £195 per day
£400 between £240 and £260 per day
£500 between £300 and £325 per day
£600 between £360 and £390 per day
£700 between £420 and £455 per day

Contracting through a limited company

As the director of a limited company, you can take advantage of a range of tax planning opportunities, savings on National Insurance contributions, access to the flat VAT scheme, and the ability to claim a broader range of expenses than you would when working through an umbrella company. There is a little more admin work involved in working through a limited company, but the overwhelming majority of contractors find that the financial benefits more than outweigh the time taken. Should you choose to work through a limited company then the process of actually forming your own limited company is simple, can be done in a matter of minutes and is usually completed the same day.

Contractors working through limited companies will typically take home around 75 to 80% of the total value of their contract, compared to those who work through umbrella companies who take home significantly less. For example if your contract rate is £500 per day as an umbrella company you would take home between £300 and £325 per day, whereas if you were working through a limited company earning the same rate you could take home between £375 and £400. Contractors working through umbrella companies are also reliant on them to collect payment from the client to pass on to them, which can make the invoicing process longer and less efficient.

As mentioned previously if you contract through a limited company then you will generally take home between 75 and 80% of your contract rate. To see what this looks like in terms of the actual amount that you could take home, see the break down below, or if you already know the rate of your contract you may find our take home pay calculator provides a more accurate figure.

Day Rate Take Home
£300 between £225 and £240 per day
£400 between £300 and £320 per day
£500 between £375 and £400 per day
£600 between £450 and £480 per day
£700 between £525 and £560 per day

In general, if you are earning more than £25,000 a year, working through a limited company is the best way to maximise your take home pay. For example, if you work 45 weeks in the year and charge a daily rate of £200, then you could save around £9,000 over the year on National Insurance contributions alone if you choose to work through a limited company. The amount that you could save will increase as your daily rate increases, so if you are charging £600 per day then you could save as much as £20,000. You can also make significant savings on VAT using the flat rate VAT scheme, which could save you a further £1,710 a year on a £200 per day contract, and more on higher value projects. For more information you may want to visit our guide to the flat rate VAT scheme.

Can I switch between limited and umbrella?

Yes, you can. Upcoming reform to IR35 means that it will be up to the end hirer to deem if you are inside, or outside of IR35. If they deem you inside, the likelihood is that they will want you to work through an umbrella company.

However, your next client may deem you to be working outside of IR35 and be happy for you to work through a limited company. This is why we have introduced our umbrella switch service to our Platinum package. Seamlessly transition between limited and umbrella, depending on which assignment you are on without having to pay an umbrella margin.

If you would like more information on how much you could be taking home as a contractor or if you would like to find out more about limited or umbrella, please fill out your information below and a member of the team will be in touch.

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