A contractor on a £400 day rate working 220 days through an umbrella company takes home about £54,500 a year, £4,540 a month, which is 62% of the £88,000 the client pays. The gap is not only income tax and National Insurance on the contractor’s pay: the umbrella first deducts its margin, employer’s National Insurance at 15% and the apprenticeship levy from the assignment rate, so the figure on the contract is never the contractor’s salary. Working outside IR35 through a limited company on the same rate keeps about £60,100, roughly £4,900 more a year before accountancy costs. The permanent salary equivalent to a £400 day rate is about £75,000.
Where an umbrella contractor’s money goes
| £400 a day, 220 days, £25 a week margin | Amount |
|---|---|
| Assignment rate paid by the client | £88,000 |
| Umbrella margin | £1,300 |
| Employer’s National Insurance at 15% above £5,000 | £10,607 |
| Apprenticeship levy at 0.5% | £379 |
| Gross pay, including £8,154 of rolled-up holiday pay | £75,714 |
| Income tax | £17,718 |
| Employee’s National Insurance | £3,525 |
| Take-home pay | £54,472, or £4,539 a month |
The employer’s costs come off the top because the umbrella is the legal employer and must fund them from the assignment rate; a permanent employee never sees them. Holiday pay is either rolled up into each payslip at 12.07% or held back and paid when leave is taken, and workers should check which applies and that held-back holiday pay is actually paid. A pension contribution through the umbrella by salary sacrifice reduces both tax and National Insurance and is the main lever an umbrella worker has. The umbrella take-home calculator works the figure for any day rate, days worked, margin and pension percentage.
Inside or outside IR35
The off-payroll working rules decide whether a contractor working through their own limited company is, for tax, effectively an employee of the client. Since April 2021 medium and large clients make that determination and, where the contract is inside IR35, tax and National Insurance are deducted before the company is paid, usually through an umbrella or the agency’s payroll. Small clients leave the decision with the contractor. Status turns on control over how the work is done, whether a substitute can be sent, and whether the client is obliged to offer and the contractor to accept work, and HMRC’s Check Employment Status for Tax tool gives a determination it will stand behind if the answers are accurate.
| £400 a day, 220 days | Inside IR35 | Outside IR35 through a company |
|---|---|---|
| Fees | £88,000 | £88,000 |
| Employer costs deducted | £11,139 | none |
| Salary | £76,861 | £12,570 |
| Corporation tax | £16,239 | |
| Dividends | £59,191 | |
| Tax on dividends | £11,682 | |
| Take-home | £55,137 | £60,079 |
The outside figure assumes the classic small company structure of a salary at the personal allowance and the rest as dividends, and it excludes accountancy fees, insurance and the costs of running a company, which typically absorb £1,500 to £2,500 of the £4,942 difference. Dividend tax rates rose by two points in April 2026, narrowing the gap further, so a contractor offered a choice between an inside and an outside contract at the same rate has less to gain from the outside route than in earlier years. The IR35 calculator compares the two for any day rate, and our dividend tax and corporation tax guides explain the two layers of company tax.
What a day rate is worth as a salary
A permanent employer paying a £75,000 salary also pays about £10,500 of employer’s National Insurance and £2,250 of pension contribution at 3%, so the total cost is close to the £88,000 a contractor on £400 a day bills for 220 days. The contractor has no paid holiday beyond what is rolled into the rate, no sick pay, no employer pension beyond auto-enrolment through an umbrella, and no notice period, and 220 days assumes a full year of work with only holidays and bank holidays unbilled. A rule of thumb that a day rate should be at least the target salary divided by 200 reflects those gaps. The day rate to salary calculator converts either way for any number of billable days and pension rate.
Umbrella companies from April 2026
Umbrella employment is now regulated for tax more tightly. From April 2026 recruitment agencies that supply workers through an umbrella are responsible for the PAYE that should be paid on those workers’ earnings, which removes the incentive for non-compliant umbrellas offering high take-home through loan or offshore arrangements. Any umbrella quoting retention well above 65% of the assignment rate for a basic rate worker, or above 55% for a higher rate worker, is doing something that will eventually be charged to the worker. Compliant umbrellas differ only in margin and service, and a weekly margin of £15 to £30 is normal.
VAT and the flat rate scheme
A contractor’s company must register for VAT once fees pass £90,000 in twelve months, and many register voluntarily since business clients reclaim the VAT. The flat rate scheme is rarely worth joining because most contractors count as limited cost businesses paying 16.5%, as our VAT threshold guide explains. Umbrella workers are employees and have no VAT position at all.
Common questions
How much does an umbrella contractor take home on £400 a day? About £54,500 a year, £4,540 a month, over 220 days with a £25 weekly margin: 62% of the £88,000 assignment value after employer’s National Insurance, the levy, the margin, income tax and National Insurance.
Why is employer’s National Insurance taken from my pay? Because the umbrella is your employer and the assignment rate includes the cost of employing you. The rate on the contract is the client’s total cost, not your salary.
Is outside IR35 still worth it? On £400 a day it keeps about £4,900 more a year than inside before company running costs, a smaller advantage than before the 2026 dividend tax rise. The difference grows with the day rate.
Who decides my IR35 status? Medium and large clients since April 2021; the contractor where the client is small. HMRC’s CEST tool gives a determination the department will honour if the facts are entered accurately.
What salary equals a £400 day rate? About £75,000, once the employer’s National Insurance and pension that a permanent employer would pay are taken from the £88,000 annual billing.
What umbrella margin is reasonable? £15 to £30 a week. Umbrellas competing on take-home rather than margin are usually not compliant.
Information, not tax advice. Figures are from the site’s calculators for 2026/27 using a £12,570 salary, 15% employer’s National Insurance above £5,000 and the published dividend and corporation tax rates on gov.uk: off-payroll working; actual take-home depends on the umbrella’s terms, pension choices and expenses. Take advice on your own contracts before acting on them.