There are 3 main routes open to contractors, PAYE, umbrella, and limited. Each option has its benefits and drawbacks, with some contractors being better suited to some options than others.
To help you find the best option for your contracting career in 2021, Umbrella Supermarket has put together this comprehensive guide on what your options are and how to pick the best one for you.
One option available to contractors in 2021 is to operate through a PAYE agency.
PAYE simply refers to pay-as-you-earn which is the most common form of taxation in the UK. Here, tax and National Insurance contributions are taken from a worker’s salary before it is paid to them. This is in line with current UK tax bands 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:
A contractor can work under a PAYE agency that will employ them, pay them a salary, and tax them under the PAYE system.
PAYE contractors will still take on contract work, however, the agency will source and secure work for them, meaning they don’t have a say over which contracts they take on and when.
Another route contractors can take is to work through an umbrella company.
When it comes to PAYE vs umbrella, the two do not actually differ in terms of how much tax the contractor will pay under each. Umbrella contractors are similarly employed by the company, paid a salary, and taxed through the PAYE system.
However, one big difference is how the contractor is free to operate.
Unlike under a PAYE agency, with an umbrella company, the contractor can choose which contracts they work on and when. For this reason, many contractors favour the umbrella company route as it gives them the freedom and flexibility of contracting, coupled with the security of having a salary.
Another difference between PAYE vs umbrella is that with an umbrella company, a contractor is given one handy tax code and continuity of employment. This is good news for those looking to secure a mortgage or get a loan. However, with the PAYE option, with every new contract the contractor takes on, they are given a new tax code.
Finally, another key difference is that most umbrella companies allow contractors to claim back legitimate business expenses. This is great news for contractors as these can be claimed back on their tax bill. However, this isn’t usually an option for PAYE contractors.
That is what the umbrella company route looks like, now let’s look at the final option – working under a limited company.
The third and final option is to operate under a limited company.
This is completely different from both PAYE and umbrella, requiring the contractor to set up a limited company and be self-employed.
As these contractors do not work through an agency and are therefore not employed, they will not pay tax through the PAYE system like PAYE and umbrella contractors. Instead, with the limited company route, a contractor is responsible for carrying out self-assessment and making their own tax and National contributions after they have been paid their contractor fee.
Many contractors are drawn to this option as it gives them a great degree of freedom over their contracting careers. However, it is also worth noting that this route requires the contractor to take on the responsibilities of running their own business, calculating and paying tax and National Insurance contributions, finding and sourcing contract work whilst getting on with the contract at hand.
Another drawback to this route going into 2021 is the upcoming changes to IR35 legislation, under which thousands of limited company contractors are set to be badly impacted. Although IR35 originally only applied to the public sector, from April 2021 it is set to be rolled out to the private sector too. This was set to come into effect from April 2020 but has been delayed due to the COVID-19 pandemic.
As a way to avoid IR35 legislation, many of these limited company contractors are now considering their options in 2021, with many looking towards the umbrella route as an alternative. After all, IR35 does not apply to umbrella contractors.
If you are a limited company contractor considering making the move to an umbrella in 2021, or whether you are new to contracting altogether and think the umbrella route would be the best for you, the next step is to find the best umbrella company for you.
The umbrella company route has become an increasingly popular option for contractors going into 2021, offering them a wide range of benefits, the security of employment, and the freedom of contracting,
To help you find the best umbrella company, Umbrella Supermarket’s umbrella calculator is here to help. Simply enter your details and contractor preferences, and we’ll generate a list of the best-suited companies in just 2 minutes. Ready to see what we 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.
