IR35 fact sheet – umbrella vs PAYE

It can be confusing trying to get to grips with IR35 legislation, and what impact it will have on your work as a contractor.

We’ve outlined everything you need to know below about working through an umbrella company versus working PAYE via an agency, so you can make an informed decision.

What does it mean if I work PAYE via an agency?

When you are contracted via CK you become employed for the duration of your contract and are enrolled onto our PAYE system to be paid weekly or monthly. As your employer, we make the necessary deductions (tax, National Insurance, pension) and provide you with a pay slip. There is no charge for using CK’s payroll, and we offer paid holidays and other statuary requirements, such as pension and SSP.

What is an umbrella company?

All umbrella companies work in the same way. When you are contracted via an umbrella company, you are effectively employed by them and enrolled onto their PAYE system. They pay you an income after deducting items such as tax, National Insurance contributions and their service fees. CK has a preferred list of umbrella companies you can use that have been pre-vetted.

What else should I consider?

Using an umbrella company adds a third-party into the equation, and when it comes to payments and queries, you ultimately will need to contact them for a resolution. Alternatively, working via CK on a PAYE contract means you have direct contact with our payroll team, with clear deadlines and pay schedules to follow.


  • Easy to set up
  • Paid holidays
  • Direct contact with payroll
  • No additional fees
  • Just like being employed


  • Need to register to set up
  • Third party link
  • Weekly or monthly fees

Why is the agency quoting different rates for the umbrella company and PAYE options?

The key difference (and reason for the different rates) is to do with how they treat holiday pay and National Insurance contributions. Umbrella companies will allow you to “roll in” holiday pay into your regular pay. This is beneficial if you don’t take any holidays, but not entirely legal. By working in this way, you are only paid for the days you work. The umbrella company will also take the employer’s NI from their rate – so although the headline figure is higher, after deductions it should come out roughly the same.

My contract is ‘inside’ IR35 – what does that mean?

In simple terms, the client has decided that the service you provide reflects a service of employment, not self-employment, and they have decided the role is therefore inside IR35. Some clients stipulate how you must contract with the agency if the contract is inside IR35, and this is usually one of two options: umbrella company or PAYE.

What is IR35?

IR35 is the term used to describe the UK tax legislation that was designed to combat tax avoidance. It applies to workers who are supplying their services to clients via an intermediary, such as a limited company, but who would be classed as an employee if the intermediary was not used. It also applies to the firms hiring them.

For more information on your working options or IR35, get in touch with us here.

Watch the IR35 Q&A video with Chris Humphreys

Read more IR35 information for contractors

Posted in: IR35
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