Umbrella Company vs Limited Company vs Agency PAYE: Which Is Best in 2025?
Choosing how to get paid as a UK contractor can have a major impact on your take-home pay, taxes, and benefits. In 2025, the three main options are Umbrella Companies, Limited Companies, and Agency PAYE. Understanding how each works can help you choose the right option for your circumstances. For a deeper dive into umbrella payroll, see our guide: How Do Umbrella Company Payslips Work?.
How Each Option Works
Agency PAYE means the recruitment agency employs you directly and handles all payroll, tax, and National Insurance contributions via PAYE. This option is straightforward and requires no admin on your part.
Umbrella Companies provide a middle ground. The umbrella company employs you and invoices your agency or client for your work. Your pay is processed through PAYE, including deductions, holiday pay, and sometimes insurance. This arrangement provides continuity across multiple contracts, which can be especially useful for contractors who move frequently between assignments. For answers to common questions, see our Top 10 Umbrella Company Questions.
Operating a Limited Company, also known as a Personal Service Company, gives you full control over your finances. You act as the director and usually pay yourself a small salary through PAYE, with the remainder of your earnings taken as dividends to reduce tax and National Insurance contributions. This can be highly tax-efficient but comes with increased administrative responsibilities. For a detailed breakdown, visit Umbrella vs Limited Company.
Taxes, Fees, and Take-Home Pay
Financial considerations often drive the choice of structure. With Agency PAYE, there are no fees to worry about, but tax deductions are higher, meaning take-home pay from a £75,000 gross salary is roughly £52,700. Umbrella Companies charge a weekly fee, typically between £15 and £30, and also pay employer National Insurance contributions. This reduces take-home pay, which on the same £75,000 gross might be around £49,500. You can read more in our article Umbrella Company Payslips Explained.
For those operating a Limited Company outside IR35, the financial picture is more favourable. Using a combination of salary and dividends, take-home pay on a £75,000 gross salary could reach approximately £63,000. However, this comes with administrative responsibilities, such as managing accounts, submitting annual tax returns, and complying with company law.
Administration and Compliance
Agency PAYE is the simplest in terms of administration. The agency handles everything, leaving you free from paperwork. Umbrella Companies require minimal setup, and the umbrella handles payroll, taxes, and insurance.
Running a Limited Company involves more administrative effort. You need to register the company, maintain accounts, and file annual returns with Companies House. Hiring an accountant is common, with fees ranging from £600 to £1,500 per year. Compliance is also more complex if your contracts fall inside IR35, which affects tax efficiency. For guidance on IR35, see our article Understanding IR35 Changes.
Umbrella Companies are automatically inside IR35, which reduces compliance risks. Agency PAYE also avoids IR35 issues entirely. Limited companies, on the other hand, must assess their IR35 status themselves, which can be challenging for contractors.
Employment Continuity and Benefits
Employment continuity is another key consideration. Agency PAYE contracts are typically treated as separate employment periods, which may limit eligibility for benefits or affect mortgage and loan applications. Umbrella Companies offer continuous employment across contracts, providing statutory rights such as holiday pay, sick leave, and maternity or paternity pay. Many umbrellas also include insurance benefits and other perks.
For Limited Company directors, statutory employment benefits do not apply. While you have full control over finances, there is no automatic safety net, meaning insurance and benefits must be arranged personally.
Choosing the Best Option in 2025
For contractors with long-term contracts outside IR35, a Limited Company is often the most tax-efficient option, offering higher take-home pay. If your contracts fall inside IR35 or you prefer a simpler setup with less administration, an Umbrella Company provides employment continuity, statutory rights, and insurance. Agency PAYE remains the easiest option, with no admin, but it is the least financially efficient.
Final Thoughts
In 2025, UK contractors have three viable ways to get paid. Limited Companies offer the greatest potential for tax efficiency and take-home pay, but they require careful management and compliance. Umbrella Companies provide simplicity, employment continuity, and benefits, even though employer NICs slightly reduce take-home earnings. Agency PAYE is the zero-admin choice, ideal for short-term or casual contracts.
Regardless of your choice, always use FCSA-accredited umbrella companies or reputable accountants to ensure full compliance and protect your earnings.
