Question submission date: April 2021
Full Question: “I’ve been told I need to use an Umbrella Company for my next contract. What is the difference between Agency PAYE and using PAYE Umbrella?”
The difference between Agency PAYE and PAYE Umbrella is based on the way you are taxed. Through agency payroll the tax is deducted by their payroll team before paid to the limited company. With an Umbrella company everything is paid at source by a recruiter. With either of these options, tax and national insurance is deducted.
Typically, the agency PAYE route offers a lower rate. You would go through the agency payroll and they would deduct PAYE and NI contributions before giving you your payslip. This will be your taxable salary and is usually on par with what you would receive if you were in standard employment.
Umbrella PAYE is usually inflated to consider additional deductions. Operating this way means you are presented with a contract rate which is usually higher than a taxable salary. Employers NI, Apprenticeship Levy and the Umbrella margin are deducted before reaching your taxable salary.
