What are the Benefits of an Umbrella Company vs. Agency PAYE?

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A common question for contractors, new or old, is what are the differences between umbrella companies and agency PAYE? To help both aspiring contractors and those looking for an alternative way of running their business, we have compiled some of the most important points that best answer this question. Read on to learn more about Umbrella Company vs. agency PAYE.

Type of employment

One key difference between umbrella companies and PAYE is how you are employed. Using PAYE, your employment begins with each contract you take and ends once you complete it. However, with an umbrella company, you are continuously employed with them, regardless of how many contracts you take or how many are currently outstanding. This form of employment can benefit you over PAYE. Making things a bit easier when applying for loans or a mortgage, as your employment can be seen as more stable.

Insurance plans

Whether it’s working with an umbrella company, through PAYE, or in salaried employment, a common necessity is insurance. For contractors working through PAYE, insurance is usually something they will need to source on their own, should they want it. Contractors using an umbrella company, however, have quite a benefit. Often umbrella companies will provide cover such as health insurance, accident cover, and life cover as part of their service at no cost to you.

When considering the benefits of umbrella companies vs. PAYE, insurance could be a decisive factor in deciding which is best for you.

Claim back expenses

Regardless of how a business is managed, keeping expenses to a minimum is always at the top of the list. Through umbrella companies and PAYE, your taxes come straight out of your earnings, meaning you don’t need to worry about tax returns. However, what if you want to claim back expenses paid during a contract? One key benefit of umbrella companies vs. agency PAYE is that they can help with this.

An umbrella company will help contractors reduce their costs by assisting in claiming back expenses. Although what can be claimed has been reduced due to the 2016 Financial Bill, expenses that have been pre-agreed with clients can be easily claimed back through umbrella companies. Additionally, they can help with claiming certain tax entitlements, such as credits or reliefs, if you are eligible. It’s always a good idea to discuss this with your umbrella company, as it can mean a reduction in the amount of tax you pay.

Administration

A necessary evil when being self-employed is, unfortunately, administration. There is no getting around filing taxes or managing the paperwork. However, with an umbrella company, the admin load can be significantly lightened. A core part of the service provided is assisting with the behind-the-curtains aspect of running a business, allowing contractors to spend more hours contracting and fewer pushing pens.

While administrative overload is not always a significant concern for everyone who is self-employed, using an umbrella company can be a perfect solution for contractors running out of hours in the day – be it to spend time with family and friends or simply on a few extra contracts.

Lifestyle and employment benefits

A significant benefit of umbrella companies vs. PAYE is that the company is your employer, meaning you receive all the benefits and rights afforded to any employee. This includes statutory benefits such as sick pay, maternity/paternity leave, and holiday. However, it can also have a range of lifestyle benefits, like childcare support or clinical counselling. In short, working with an umbrella company grants you all the benefits you would expect working as a salaried employee. With all the freedoms of being self-employed.

There for you

It is always a good idea to have preparations for when something doesn’t quite go right. One of the most important preparations to make is what support is available to you during these times. When comparing an umbrella company vs. agency PAYE, a critical distinction is how they are paid; a PAYE agency receives their payment from the end client, whereas an umbrella company is paid directly by you. This means that it is more likely for an agency to have conflicts when offering support, yet equally feasible for an umbrella company to have your best interests at the forefront of their actions.

Making a choice can often be down to the support available when things go south. For contractors looking for that extra peace of mind, an umbrella company could be the right decision. They will always be easily reached and have your best interests at the heart of their service, which could make all the difference when you need it.

Which to choose?

Ultimately, there is no one solution for every contractor. You will need to assess your situation to see which is best for you. Hopefully, you will now be able to make that decision more quickly, more easily, and most importantly, more informed.

If you have any questions, reach out to us here, and we will be happy to help.

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