PAYE means to pay as you earn, is a tax and National Insurance Contribution (NIC) payment method built over the creation of IR35, an intermediaries legislation that seeks to stop tax avoidance. If contractors would not take limited company scheme, they have the option of whether to use PAYE Umbrella Payroll Companies or secure PAYE immediately from an agency. To get a better preference between these two methods, it is important to grasp them well.
PAYE Through Umbrella Company
Contractors become the employee whenever they go PAYE with an umbrella company. By signing the deal, they enable umbrella company to collect the charges from the clientele depending on the timesheet submitted by the contractors. The umbrella company will then compute and take the tax and NIC just before giving contractors their net salary.
Registration with umbrella company is not a complex process. The truth is, it's got minimum requisites. Among them will be identification and address, and the most important are, definitely, the actual contracting jobs. A contractor is required to be "employed."
There are specific concerns when determining an umbrella company. And probably the most important component is stability. The umbrella company must be financially stable to settle its obligations to contractors. It is a sad situation that there are some umbrella companies doing work with unfavorable financial status. This can be very risky on the position of contractors. Another is the cost. Make sure that you evaluate whether you can get the actual true worth of the money you pay. Service is another crucial thing to consider.
One key advantage of an umbrella company is that contractors need not head through the expensive method of forming a company and then arranging it for dissolution, unlike a limited company.
PAYE Through Agency
There are several agencies who allow contractors avail PAYE through their payroll services. Apparently, PAYE via agency could be the least tax favorable alternate for contractors given that will pay the full tax amount and NIC. It doesn't allow a business running costs claim to lessen the tax and NIC payment. Unless no costs can be incurred during the course of business in addition to tax and NI, PAYE with an agency is the easiest.
Most recruitment agencies, still, would opt not to take PAYE solutions for contractors because it is going to be cost efficient if they will conduct business through intermediaries. They would instead pass contractors to umbrella companies.
On the contractors' side, going through umbrella company could certainly generate better take home pay to be employed through umbrella company than straight to the recruitment agency.