Before we compare PAYE vs umbrella, let us first look at each option in more detail and what each entails.
An umbrella company employs a contractor and therefore takes certain tasks off their hands such as invoicing the client, chasing payments, paying them a salary and working out and deducting the correct level of tax and National Insurance through the PAYE system.
The PAYE system simply refers to pay-as-you-earn which is the most common form of taxation in the UK and is paid by most UK employees.
Under the PAYE tax system, the current tax bands are as follows:
If you live in Scotland, the income tax rates are slightly different as follows:
The PAYE system in Wales is based on the following tax bands:
As the company’s employee, umbrella company contractors also qualify for statutory rights such as sick pay, paid holiday leave, a workplace pension and maternity or paternity leave.
Find out more about umbrella sick pay and other statutory rights in our handy guide.
Contractors can still choose which contracts they work on and when, but they don’t have to deal with the tasks and finances of running their own business like self-employed contractors do through a limited company.
A PAYE agency also employs the contractor, however they dictate which contracts the contractor must work on and when.
Under a PAYE agency, just like with an umbrella company, the contractor will also be paid a salary and have their tax deducted and paid according to PAYE tax bands. They will similarly qualify for statutory benefits and have general admin tasks taken care of for them.
The main differences between PAYE and umbrella include:
Who chooses your contracts
One significant difference between the two options is who chooses which contracts the contractor will work on and when.
Whereas with an umbrella company the contractor is free to source and select which contracts they work on and with which clients, a PAYE agency will make this decision for the contractor.
For this reason, contractors that wish to be in charge of their own career development and progression usually opt for the umbrella route.
Continuity of employment
With a PAYE agency every new contract the contractor takes on is a separate run of employment. On the other hand, with an umbrella company your employment will continue from contract to contract, meaning one handy tax code.
This makes life easier when doing things like applying for a mortgage or loan.
Expenses
Another difference between PAYE and umbrella is whether you can claim tax relief on work-related expenses.
The good news is that most umbrella companies will allow contractors to claim for expenses which can reduce the amount of tax you need to pay. However, PAYE agencies don’t usually offer this option.
Having looked at the key differences between PAYE vs umbrella, it’s time to make a decision about which route is best for you.
It is worth noting that both the PAYE and umbrella options process tax through PAYE, however, umbrella companies do allow contractors to claim business expenses which can reduce the amount of tax paid.
Contractors should also look at the degree of freedom and flexibility they want over their careers.
If the ability to choose which contracts you work on and which clients you work with is important to you, umbrella is the best way to go. After all, with an umbrella company contractors are free to progress their careers and move forward at a pace that’s right for them, unlike with a PAYE agency which dictates which contracts you will work on.
Thousands of contractors select the umbrella company route as a way to combine the security and stability of employment with the benefits of being self-employed and being able to choose which contracts you work on.
If you’ve weighed up your options and decided that umbrella company is the way to go, Umbrella Supermarket is here to help you find the best umbrella company for you.
Our handy umbrella calculator makes it quick and easy for contractors to find the best umbrella company for their needs and requirements.
After all, there are hundreds of umbrella companies out there competing for your custom which can make it confusing to know which company is the best to work with.
That’s where our contractor calculator comes into play. By simply entering a few details about yourself, such as your contractor rate and requirements, our umbrella calculator will generate a list of the best umbrella companies for you.
Why not see what our umbrella calculator can do for you today?
Any contractor considering switching to an umbrella company will want to know how to find the best provider to work with.
Although you could spend your precious time and energy searching the web for the best umbrella company, there is an easier way – using an umbrella calculator.
In this guide, Umbrella Supermarket explains why every contractor should use an umbrella calculator in 2021.
If you are considering contracting you will need to decide on PAYE or umbrella.
It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.
To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.
There are many reasons that contractors across the UK opt to work under an umbrella company.
Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.
For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.
Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.
In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.
If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.
After all, there are lots of umbrella companies out there, so how do you know which one to choose?
To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.
One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.
In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.
To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.
If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.
After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.
PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.
To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.
To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.
Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.
One way that contractors can work is through an umbrella company.
Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?
To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.
There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.
After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.
However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.
To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.
If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.
To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.
