Let’s start by looking at exactly what PAYE means. PAYE, or pay-as-you-earn is the most common form of income tax in the UK.
With this system, tax and national insurance contributions are taken from the contractor’s salary before it is paid to them.
Most payroll workers are taxed through the PAYE system. The exception lies with the self-employed who work off-payroll. These workers instead fill out a tax return, under which a self-employed individual or business pays their tax annually, quarterly or monthly after they have processed their income and outgoings.
Contractors that opt for the PAYE option will be taxed in line with current tax bands and will work through a PAYE agency who will source and secure contracts for them to work on.
Although tax bands can change from year to year, current tax bands in the UK for 2020 – 2021 are as follows:
When it comes to PAYE vs umbrella, it’s important to note that technically umbrella companies do not differ from PAYE.
Just as a PAYE agency does, an umbrella company hires the contractor as their employee, putting them on their payroll and processing their income and tax through the PAYE system.
So, what is the difference when it comes to PAYE vs umbrella?
The main difference between the two is who the contractor chooses to work with and how this will impact the way they contract.
A PAYE agency will employ the contractor, process their salary and tax through the PAYE system and choose which contracts the contractor works on and when. PAYE agencies are easy to join and entitle contractors to statutory benefits received by employees, such as holiday and sick pay.
However, the main drawbacks of the PAYE agency option are that contractors cannot choose which contracts they work on and when. For contractors looking for full control over their work, this usually means this isn’t the best option.
When it comes to an umbrella company, the contractor will again be employed by the company with their salary and tax will being processed through the PAYE system, they will also receive statutory benefits, however the main difference is that the contractor can choose which contracts they work on and when.
This is one of the biggest appeals to many contractors looking for the freedom and flexibility to choose the projects they work.
It is also worth considering that there is a third option for contractors. With the self-assessment route contractors will be self-employed, usually operating under a limited company.
With the option, the contractor will not be put onto a company or agencies’ payroll. They will instead carry out a self-assessment, responsible for making their own tax and National Insurance contributions once they have been paid their contractor fee.
With this option, the contractor will still be subject to the current tax bands, the only difference is how their tax is paid.
Although this option offers complete freedom for the contractor, the drawbacks are that the contractor will not receive statutory rights enjoyed by employees and will face the complexity of filing their self-assessment tax return and hassle of running a business.
When it comes to deciding between PAYE vs umbrella, many contractors want to look for the most cost effective option. However, because both these options use the same tax rates, neither option is more cost efficient than the other. That’s why contractors should instead make their decision based on which option works best for them.
The decision will ultimately boil down to whether the contractor wants complete freedom in carrying out self-assessment and setting up their own business, or whether they want the stability and ease of working under an agency.
If a contractor does choose the agency route, the next step will be to decide between PAYE vs umbrella. This decision will come down to whether the contractor wants to choose which contracts they work on under an umbrella company, or whether they want this decision to be made for them, in which case a PAYE agency will be the better option.
Many contractors will choose the umbrella company route as a way to couple the security and stability of being employed with the benefits of being self-employed in being able to pick and choose what contracts they work on and when.
If an umbrella company sounds like the perfect path for you, the next step is to find the best umbrella company for your needs.
Once you’ve decided between PAYE vs umbrella, contractors that have opted for the umbrella company route will now need to find the best umbrella company for their needs.
That’s where Umbrella Supermarket’s handy umbrella calculator comes into play. We make it quick and easy for contractors to find the best company based on their personal preferences. Simply enter your details and we will generate a list of the best suited umbrella companies for you.
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.
