PSC or umbrella: how are contractors engaged in the UK?
A PSC is a personal service company, a limited company the contractor owns and invoices through. An umbrella company instead employs the contractor and runs them through PAYE, deducting tax before paying them. The choice is usually driven by IR35 status: outside-IR35 work tends to run through a PSC, inside-IR35 work through an umbrella or agency payroll.
In a PSC arrangement the contractor is a supplier. Their limited company invoices the agency, the agency pays it gross, and the contractor handles their own tax. Administratively this is the lighter of the two, and it is the model most contract desks placing specialist professionals will recognise.
An umbrella company sits between the agency and the contractor as an employer. The agency pays the umbrella, the umbrella runs PAYE and passes on net pay. The contractor gets employment rights and a payslip, and the agency is not running payroll itself.
What decides the route is usually IR35. Since the 2021 reforms in the private sector, the end client determines whether an engagement is inside or outside the rules, and where the client is medium or large the liability sits with the fee payer. An inside-IR35 determination effectively rules out paying a PSC gross.
Worth saying plainly where we sit: Vayora supports contractors engaged through their own limited company. Umbrella arrangements and agency PAYE payroll are not what the finance engine does today, and an agency whose desk depends on them should know that before a demo rather than after.