PAYE, Umbrella Company or Limited Company?

PAYE, Umbrella Company or Limited Company

How do you want to be paid: PAYE, Umbrella Company or Limited Company?

Most of the times you will be asked this question for the first time during the interview process.

If these terms do not ring any bell, it is worth keep reading this article.

Getting paid is always a very important part of the job. How and how much are equally fundamental questions.

In the UK, document reviewers can be potentially paid via the 3 different methods outlined above. The first one is called Paid As You Earn (PAYE).

PAYE is the default system that employers need to follow when paying employees. Like in many other countries, your employer has to deduct income tax and national insurance contributions directly from your salary and pay the tax man (HMRC in the UK) on your behalf.


The good thing is that you – employee – do not need to do anything apart form cashing the paycheck. The less good thing is that you could probably earn more doing the same job and asking to be paid via an umbrella company or a limited company instead.

In the second option, in fact, you are not qualified as an employee of the company you are reviewing for, but as an employee of a different company (the Umbrella Company). Your formal employer is the Umbrella Company, who pays you following the PAYE principles and then invoices the client for the number of hours you worked on a specific project.

The difference is that, by working for an Umbrella Company, you will be able to claim, with some variations, travel and food expenses, accommodation and other expenses you incur while working on an assignments. This way you will bring home a higher salary compared to the simple PAYE.

As this is perfectly legal it would be a pity not to take advantage of that.

The third option is setting up a limited company (LTD) and invoice directly the client for the hours you work.

The LTD company is 100% owned by you (you are the only shareholder) and you also are the sole director. Offering your professional services via a LTD company grants you a huge tax cut because dividends are not subject to national insurance contributions. We will analyse in detail the pros and cons of a limited company but it is important to know that you should check with your accountant and with the HMRC if any of your assignments falls within the blanket of IR35. In this case you may be liable to pay taxes as if you were an employee of your client instead of a supplier.

2 thoughts on “PAYE, Umbrella Company or Limited Company?”

Leave a Reply

Your email address will not be published. Required fields are marked *