The key difference between these two models is largely down to responsibility and return. If you want to operate in business on your own account and take on the admin responsibilities of a PSC, your take home pay should reflect this (assuming of course you work outside IR35). But if you prefer to let someone else handle the running of your company, an umbrella may well be the most suitable option.
PSC - Advantages
- It is the most tax efficient way of working if you are outside of IR35.
- You are entitled to claim for a wider range of expenses.
- It allows you access to the Flat Rate VAT scheme.
- You keep complete control of your financial affairs.
- You do not have to risk your money with any third party administrator.
- There is greater opportunity for tax planning than with PAYE umbrella.
Umbrella company - Advantages
- The umbrella option is very easy to use. Submit your timesheet and expense details and wait to be paid.
- Taxes are deducted before you receive your money, so you don’t have to plan for any tax demands.
- It is ideal for short-term contracts and contracts that are less than £25k per year.
- Umbrella’s are good if you are unsure if contracting is for you or you're in between permanent jobs.
- Someone else will be doing all the paperwork.
PSC - Disadvantages
- Paperwork can be onerous and you'll need an accountant.
- PSCs are costly if you contract for a short period of time then go back to permanent employment.
- You will be responsible for issuing invoices, and may spend a lot of time chasing payments.
- There is a lot to set-up.
- A PSC may not be ideal for contracts less than £25k per year.
Umbrella company - Disadvantages