SiteYou've been on the tools twelve years. Sparky by trade, multi-skilled because the job made you. You've done the nights, the shutdowns and the 3am calls when the case sorter's dead and the trailers are waiting.
Now an agency's on the phone with a rate that beats your payslip by a mile. Then the email lands. "This role is inside IR35. Please pick an umbrella from the list." There are four names on it. One says you'll keep more.
You can read a drive fault code from across the shop floor. Nobody ever showed you how any of this works.
Most engineers who get burned going contract don't get burned on the rate. They get burned on how the rate is paid.
Three ways the money reaches you
The first is PAYE through the agency. It puts you on its payroll and takes tax and NI off before you're paid. Where the agency rules apply, HMRC treats you as employed by the agency for tax, and the agency has to run PAYE (ESM2039). It's the simplest route. After 12 weeks* in the same job, you're entitled to the same pay as a permanent employee doing that job (GOV.UK).
The second is an umbrella company. The umbrella employs you and pays you through PAYE. It doesn't find you work. The agency does that (GOV.UK).
Here's the bit the advert doesn't tell you. The agency pays the umbrella an assignment rate. Out of that, the umbrella takes its margin, employer NI, employer pension, holiday pay and Apprenticeship Levy if it applies. What's left is your gross pay. Then your own tax, NI and pension come off that. So the rate on the advert usually isn't what you get paid.
Before you start, the agency has to give you a document showing which umbrella you'll be with, the rate paid to it, what it will deduct and your minimum gross pay. Read it like you'd read a permit.
The third is your own limited company. You're the director. The company invoices the agency or client, gets paid and then pays you. You keep the records, file the accounts and the Company Tax Return, and pay Corporation Tax. You can pay an accountant to do the work, but you're still legally responsible for it (GOV.UK). More control, more paperwork, and IR35 decides whether the tax works out the way you hoped.
What IR35 actually means for you
The off-payroll working rules, better known as IR35, are there so a contractor working through their own company pays broadly the same tax and NI as an employee would. They apply if you'd have been an employee had you worked for the client direct (GOV.UK).
Who makes the call depends on the size of the client. If the site belongs to a medium or large business, the client decides. If it's a small private business, your own company decides. The size test looks at turnover, balance sheet and staff numbers, and the client has to confirm its size if you ask (GOV.UK). So ask.
A medium or large client has to give you a status determination statement, with its reasons. If the answer is "inside", whoever pays your company takes tax and NI off before the money arrives. One trap here: they don't take off student loan repayments. You have to register for Self Assessment and pay those yourself.
It's decided contract by contract. Same engineer, two sites, two different answers. That's normal.
If you think the client's got it wrong, say so in writing. The client has to reply within 45 days*, and keeps applying its first decision until then (GOV.UK). HMRC's check employment status for tax tool, CEST, is worth running yourself. HMRC says it will stand by the result as long as what you put in is accurate.
Be honest with yourself about how the job really runs. Who tells you where to be and when? Whose tools, whose rota, whose shift manager? We won't draw the line for you. That's the client's job and CEST's. But setting up a company to look "outside" on a job that runs like a staff job is a bet against HMRC, and HMRC has more time than you.
Umbrellas: read the payslip, not the pitch
Plenty of umbrellas follow the rules. Some don't.
HMRC's warning is about disguised remuneration. That's part of your pay coming to you as a loan, advance, grant or annuity you're told you'll never pay back. It's sold as tax-free. Most of these schemes don't work, and the tax bill comes to you (Spotlight 60). HMRC also warns that offers framed as a take-home percentage, "keep 80%", are likely to be avoidance.
HMRC does not approve or endorse any umbrella company (GOV.UK). If the sales pitch says "HMRC approved", that's your answer.
Every payslip, check:
- the hourly rate and hours match your timesheet
- gross pay, deductions and net pay add up, and nothing's lumped together where tax could hide
- the NI and pension coming off your gross are employee contributions, never employer
- no money arrives from anyone other than your umbrella, and no text tells you about a "separate amount"
- the margin was shown to you when you signed, and it isn't far bigger than other umbrellas charge
- the umbrella's name and PAYE reference aren't changing every few weeks
That last one matters. Frequent changes you didn't ask for can be a sign of mini umbrella fraud, and it can affect your work history and your chances of a mortgage (GOV.UK). Then check the tax and NI on your payslips match your HMRC personal tax account. If they don't, ask why.
What changed in April 2026
From 6 April 2026*, there's a new rule for any money paid to workers through an umbrella. The agency that contracts with the end client is responsible for making sure the umbrella runs PAYE correctly. If there's no agency, it's the end client. If the umbrella underpays, HMRC can recover the money from them (GOV.UK).
That gives agencies a real reason to stop using dodgy umbrellas, so expect more checks. It doesn't let you off. The umbrella is still your employer and still responsible for paying you correctly. And you're still responsible for paying the right tax, even as an employee. A loan scheme run through an umbrella is no safer than it was in March.
Our view
Pick the route by how you actually work, never by the biggest take-home figure.
Short jobs through agencies, a breakdown here, a few weeks of cover there? PAYE or a clean umbrella is less hassle and you won't lie awake over it. A limited company starts to make sense when you really are running a business: several clients, your own kit, your own insurance, and a client big enough to give you a status decision in writing. Speak to an accountant before you set one up, not after the first tax return.
And if anyone's offer leaves you with more than HMRC's tax calculator says you should keep, walk away. The money that looks free is the money you'll be paying back.
What to do on Monday
- Dig out your last three payslips and go down the list above. Then log in to your personal tax account and check the numbers match.
- Before you sign with any agency, ask for the document showing the umbrella, the rate paid to it, the deductions and your minimum gross pay.
- If you run your own company, ask every medium or large client for its status determination statement and reasons. Ask small clients to confirm their size.
- Run your next contract through CEST yourself and keep a copy of the result.
* The 12-week equal pay point, the 45-day reply deadline and the 6 April 2026 umbrella PAYE rule are correct as of 25 September 2026. Check GOV.UK's umbrella company guidance and off-payroll working guidance for the latest. This post is general information, not tax advice.