Choosing the right path for you

An umbrella company is a company that employs agency contractors who work on temporary contract assignments, usually through a recruitment agency in the United Kingdom. Recruitment agencies prefer to issue contracts to a limited company as the agency liability would be reduced. It issues invoices to the recruitment agency (or client) and, when payment of the invoice is made, will typically pay the contractor through PAYE with the added benefit of offsetting some of the income through claiming expenses such as travel, meals, and accommodation*. – Wikipedia

If you use a standard PAYE Umbrella Company, you would become an employee with all employee rights of that company. The umbrella company would invoice the agreed rate (this is not your pay), deduct an administration contribution, Employers National insurance and the apprenticeship levy. The umbrella company would then pay you via PAYE on the remaining amount deducting the correct tax and employees national insurance, along with any pension contributions.

If the Umbrella company offers expenses (*Subject to SDC) they will do this in one of 2 ways, by helping you complete a P87 (Claim Income Tax relief for your employment expenses) at the end of the year or by agreeing an amount of claimable expenses with your umbrella company at the beginning of your contract.

Some umbrella companies have other options for managing a contract. They insist they are fully compliant with HMRC and avoid the pitfalls of IR35 but we would suggest avoiding EBT’s, offshore and loan schemes.

Making the decision to work abroad can be a difficult one, however, some Umbrella companies offer an International arm. The solutions will be wide ranging and differ from country to country.