Contractors who are working inside IR35 and therefore need a PAYE solution will almost always be better off being employed by an umbrella company. So, why is that, and what advantages does umbrella company employment have over Agency PAYE?
You will have a single, continuous period of employment for as long as you choose to stay with the same umbrella company, even if you work for many different clients and agencies.
This simplifies your employment history and can make it easier to access credit and mortgages. It also means that the employment rights we’ll talk about in the next section apply even when you’re between contracts or taking a break.
Because you’ll be employed by your umbrella company, you have all the rights, protections and benefits that UK law gives to employees. These include:
Access to a workplace pension
It’s worth noting that you would not have all these rights if you chose Agency PAYE, and you’d have no rights at all between contracts.
All UK employers, including umbrella companies, are required to provide and contribute to a pension scheme for all qualifying employees. If you qualify you will be enrolled onto the umbrella company’s pension scheme.
If you have an existing pension of your own, the umbrella may be able to contribute to it on a salary sacrifice basis. It’s likely that pension contributions feature in your tax planning strategy, so we’d advise that you choose an umbrella company who can contribute via salary sacrifice.
Choose your umbrella company carefully:
Before signing up with an umbrella company you should find out:
Are they fully compliant? This is very important as involvement with a non-compliant umbrella can put you at risk, particularly if they're involved in tax avoidance. Many contractors have received life-changing tax bills because they trusted the wrong company.
Can they make contributions to your existing pension? Your umbrella company may or may not be able to contribute to your existing pension via salary sacrifice, or allow you to control the value of your contributions. Find out what their policy is before signing up.
Do they offer any additional benefits? These can make a significant difference. For example, Orange Genie Umbrella employees get access to Orange Genie Edge, which includes benefits designed to make their money go further, help them care for themselves and their families, and get more out of contracting.