Umbrella or PAYE? – A Simple Explainer for Supply Teachers and Teaching Assistants

UCM Recruitment

Tax. Urgh. It’s everybody’s least favourite subject, but as a supply teacher or teaching assistant, it’s essential you get to grips with it, especially if you choose short term/day-today supply positions. In this blog, we wade through the ins and outs of being paid through PAYE versus being paid via an Umbrella company, explaining each works and what you should be aware of. First, let’s begin with the basics…

PAYE – WHAT IS IT?

Pay as You Earn (PAYE) is the UK system for income tax and national insurance contributions. Typically with PAYE, the recruitment agency would manage this through a company, which then handles the income tax and NI administration, before sending the net wages to the teacher or teaching assistant.

UMBRELLA COMPANY – WHAT IS IT?

An Umbrella company can be thought of as a middle man that acts as your employer in order to process your pay.

Previously, all supply teachers and teaching assistants could claim tax relief on travel and subsistence expenses if they used an Umbrella company. However this has now changed, and generally very few remain eligible for claiming expenses under the new rules (we dig into this issue a little more in the following section).

Notably, Umbrella companies allow for the ‘employer’ to avoid their own tax contributions, in turn meaning that those working under this arrangement typically receive a higher daily wage than if they were to be paid by PAYE.CLICK TO TWEET

However, and this is the important bit, Umbrella companies charge a daily fee for their service, and in doing so level the playing field. With these charges considered, whether paid via PAYE or through an Umbrella company, teachers and teaching assistants typically receive the same net payment – being no better nor any worse off whatever the method of payment they choose.

RECENT LEGISLATION CHANGES – WHAT DO THEY MEAN FOR YOU?

From April 2016, HMRC introduced legislation to cut the number of contractors who were able to claim tax relief on travel and subsistence expenses. This radically altered supply teachers’ and teaching assistants’ pay-packets (estimates at the time stated that they could lose as much as £3,000 per year in tax relief).

The legislation requires that contractors prove that they are not working as though they are full-time employees by their ‘client’ (in your case, this would be a school/college/education institution). In order to be entitled to claim travel and subsistence costs, you must not be under ‘supervision, direction or control’, these are defined as…

Supervision – being overlooked at your workplace to make sure you are carrying out your tasks in line with your contract.

Direction – being given clear instructions, guidance or assistance on how to carry out your tasks.

Control – being directly dictated to doing as asked in order to correctly carry out your assignment.

If you are deemed as entitled to claim, you’ll be able to claim for the following…

TRAVEL

  • Travel required in order to carry out the agreed requirements of an assignment
  • Travel to a place of work or travel from a place of work (excluding commuting)
  • Travel between the workers home and a temporary place of work (from home to the temporary site and from a temporary site back home)

SUBSISTENCE

  • Food
  • Drink
  • Accommodation

SO, WHAT SHOULD YOU CHOOSE?

The internet is awash with confusing guides on the topic of PAYE versus Umbrella companies. So here’s our short, sharp summary – whichever method you choose – you’ll receive the same net pay, whether PAYE or an Umbrella company.

Let’s be clear: supply teachers and teaching assistants typically find no noticeable difference to their pay-packet – whether being paid by PAYE or via an Umbrella company. While Umbrella payment rates are higher than PAYE rates, this is due to the deductions that are taken by the Umbrella company in service fees, as compared to PAYE.