Umbrella Company vs Agency PAYE

If you’ve decided that running your own business as a limited company or sole trader really isn’t for you, you might consider working through an umbrella company. Alternatively, there are a number of recruitment agencies who could process your income directly as PAYE through their own payroll.

The two options are very similar as in each case you become an employee of the organisation, which then takes care of all necessary payroll and administrative tasks. Both options will see you taxed under the pay as you earn (PAYE) system, meaning you never have to worry about completing any tax returns.

Your agency may offer you two hourly rates of pay. These rates exist as the recruitment agency uplifts the umbrella rate to pass their employment cost savings on to the contractor.

Significantly, both options involve far less paperwork and your personal responsibilities are much lower than if you chose to work as a sole trader or limited company.


Umbrella PAYE vs Agency PAYE

Umbrella PAYE

This is where you become an employee of an Umbrella Company, allowing you to work on a series of assignments without the responsibilities of running your own company.

For more details about Brookson's Umbrella Solution, click here.

Agency PAYE

Working with a recruitment agency means that you will be employed by them. Your salary will be processed by their own payroll as PAYE.

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When you are offered a contract role through a recruitment agency, you may be offered two separate pay rates. One rate to work as an employee of the agency and another to work as an umbrella employee. The two rates exist as the recruitment agency uplifts the umbrella rate to pass their employment cost savings on to the contractor.


Both options involve far less work than running a limited company, but umbrella contractors have slightly more to do than agency staff. In both cases a timesheet has to be submitted including details of the hours you work, but those employed by umbrella companies must also submit expenses forms. Still, since this paperwork maximises your take home pay, you may well decide it’s worth investing the time.

One of the best things about self-employment is the freedom to pick your assignments and choose when and where you want to work. If you intend to take one contract before retaining permanent employment, then agency payroll is likely to be your best option as you may not be able to claim tax relief on travel and subsistence expenses.

If, like some contractors, you tend to work on several projects, you might find that umbrella companies are a good option. If you decide that self-employment in the long run is for you, then it's often best to consider running your own business to take advantage of further tax relief to increase your take home pay.

Making the decision to work for yourself will have a considerable impact on your life, and for many who have only just made the switch, umbrella companies and agencies are an excellent option while they get to grips with self-employment. Equally, both have been successfully used by a number of professionals for long, fruitful careers. Still, neither has the benefits that can be offered by working through a limited company.

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