Umbrella Company vs PAYE

**LisaContractorUmbrella** · 17 October 2013, 07:10

Welcome to the forum

Whether you work on an agency's books or through an umbrella company, you will be an employee which means that your tax and national insurance contributions will be made through PAYE.

If you work with an umbrella company you will be engaged under a contract of employment and they will work under a business to business contract with the agency. The contract rate will be payable to the umbrella company who will deduct their margin from it and will fulfill their legal obligations by making payment to HMRC for Employer's National Insurance. The balance is your salary on which you will pay income tax and employee's national insurance contributions.

The contract rate agreed with the umbrella company will be higher than the rate offered to you if you engage directly with they agency as they will be taking on employer responsibilities rather than the umbrella company.

With regard to expenses: if the client has agreed to reimburse certain costs then, whether you are paid direct by the agency or through an umbrella company, they will be paid to you in addition to your salary. If, however, the client will not be reimbursing any of your costs but they would be allowable as expenses according to HMRC rules then your umbrella company will process those costs with your salary and you will receive tax relief on them.

HTH

**One Click Group** · 17 October 2013, 09:50

Rates

That's a good explanation from Lisa.

The majority of agencies will uplift the rate they would pay someone if they are using an umbrella (or limited company) but not all do. A small minority will only uplift by either the employer's NI element or the holiday pay element or not provide any form of uplift in order to increase their margin. Thankfully this is not prevalent but it is worth asking the question before you agree the rate.

If the agency do not uplift the rate then there will almost certainly be no advantage in working via an umbrella company.

**LisaContractorUmbrella** · 17 October 2013, 10:59

That's a good point - if an agency gives you two different rates, it is certainly worthwhile running them through online calculators to see what your take home pay will be through an umbrella company v standard PAYE. One thing to bear in mind is that some umbrella company calculators will have an amount 'built in' for expenses which will then give you a skewed result - make sure that you check first.

**northernladuk** · 17 October 2013, 11:47

Without reading too much in to this surely the OP is confused here. It's either a contract or it's a PAYE gig. They are different beasts and I didn't think they offered a choice. If it is a contract then you have a choice of Umbrella or LTD yes but that isn't what is coming across in the OP's mail. A fundamental misunderstanding of the situation here or do agents offer a role as either a contract or PAYE?

**kyrianic** · 17 October 2013, 11:50

Thanks a lot for the replies!I find them very very useful!

But I would appreciate your comments on my specific situation so that I can better understand how things work. I was offered by the agency a daily rate of 100 GBP for working Monday-Friday from 9:00-17:00. I will be travelling by car from home to work and back (37 miles each way per day, i.e. a total of 74 miles per day). What will be my approximate take-home pay by an umbrella company based on my circumstances? Or I have the option of travelling by train (15 GBP for a return trip per day). Which one do you recommend? Thanks a lot for your invaluable help!

**northernladuk** · 17 October 2013, 11:58

You could try doing a little research and check the calculators out first..... There are a whole host of links to the right under the Umbrella section and you could try using google to look for an Umbrella take home calculator. There is even a calculator on Lisa's own site you could try use.

As a contractor you have to stand on your own two feet so time to start researching.

**LisaContractorUmbrella** · 17 October 2013, 12:22

Originally posted by northernladuk View Post

Without reading too much in to this surely the OP is confused here. It's either a contract or it's a PAYE gig. They are different beasts and I didn't think they offered a choice. If it is a contract then you have a choice of Umbrella or LTD yes but that isn't what is coming across in the OP's mail. A fundamental misunderstanding of the situation here or do agents offer a role as either a contract or PAYE?

Actually that happens quite often - we have people come to us saying things like they've been offered £11 per hour to go on agency's books or £12 per hour to go umbrella and they are often told that they will make more money if they take the brolly route which, of course, with those rates they won't

**LisaContractorUmbrella** · 17 October 2013, 12:23

Originally posted by kyrianic View Post

Thanks a lot for the replies!I find them very very useful!

But I would appreciate your comments on my specific situation so that I can better understand how things work. I was offered by the agency a daily rate of 100 GBP for working Monday-Friday from 9:00-17:00. I will be travelling by car from home to work and back (37 miles each way per day, i.e. a total of 74 miles per day). What will be my approximate take-home pay by an umbrella company based on my circumstances? Or I have the option of travelling by train (15 GBP for a return trip per day). Which one do you recommend? Thanks a lot for your invaluable help!

In order to be able to answer your question I need to know if you are intending to work on this one contract and then go back to permieland or if you intend to work on more assignments once this one is over

**kyrianic** · 17 October 2013, 15:11

What do you mean by permieland?For the moment I am thinking of working on this assignment for 6 months (that's the time of the contract) and once this ends I may search for a job either a permanent one or continue contracting.How is this related to my previous post?Thank you for your replies.

Umbrella Company vs PAYE