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kyrianic
16th October 2013, 20:09
Hi guys!I have just gained a contract with a company for 6 months and would like to ask what is the difference in salary terms between an umbrella company and PAYE? If there is a difference, why are there PAYE umbrella companies and what does it mean? In addition, why are travelling expenses not reimbursed through the umbrella company but are just offset for tax purposes? Thank you!

LisaContractorUmbrella
17th October 2013, 07:10
Welcome to the forum :wave:

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
17th October 2013, 09:50
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
17th 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
17th 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
17th 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
17th 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
17th October 2013, 12:22
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
17th October 2013, 12:23
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
17th 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.

One Click Group
17th October 2013, 15:34
Hi kyrianic

What Lisa is asking is are you planning on continuing to take contracting roles or is the position temp to perm?

In order for you to benefit from working with an umbrella company (and offset business expenses) there needs to be a commitment from you to continue taking temporary roles. In other words, if you join an umbrella company with the intention of only completing the one assignment and then resigning from the umbrella and going permanent (permieland) then there would be no benefit as you would be prevented from claiming tax relief on your expenses from the outset.

alluvial
17th October 2013, 15:39
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.

The answer to the question is "Yes I intend to continue contacting and I will be taking up future positions with you"

LisaContractorUmbrella
17th October 2013, 15:43
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.

In order for you to be able to claim tax relief on the cost of your travel you would need to have the intention to work on more than one assignment through the umbrella company. Travel and subsistence expenses can only be claimed when you are travelling to a temporary workplace; a single assignment automatically becomes a permanent place of work and therefore the expense would not be allowable under HMRC rules

kyrianic
17th October 2013, 17:31
Thank you guys. I was not aware of that. So do all umbrella companies ask this question whether I will continue contracting or not?How do I know if I will manage to get a new contract in six months?

alluvial
17th October 2013, 18:09
Thank you guys. I was not aware of that. So do all umbrella companies ask this question whether I will continue contracting or not?How do I know if I will manage to get a new contract in six months?

I used Lisa's mob before I regained my sanity and went back onto the Ltd path.

I was asked the question and I told them (truthly) that yes I intended to continue to contract through them for my next assignment but come the end of the contract with no next assignnment I was sent a resignation form to sign which made the whole question moot anyway. So, as I said earlier, your stated intention should always be to continue with them so that you can benefit from tax free expenses.

LisaContractorUmbrella
18th October 2013, 08:45
Thank you guys. I was not aware of that. So do all umbrella companies ask this question whether I will continue contracting or not?How do I know if I will manage to get a new contract in six months?

All umbrella companies should ask you that question in order to be compliant with HMRC requirments