Parasol vs PayStream
Which Umbrella Company is Right for You?
There's a lot that goes into contracting, but hard work really does pay off when it comes to work-life balance, being your own boss and having the freedom to choose projects, clients and tasks that appeal to you. But, to enjoy these benefits, you need to approach contracting in a way that works for you. For a lot of people, that means working under an umbrella company.
At Go Limited, we've seen a lot of contractors struggle with how to choose an umbrella company. This is understandable, considering how many options there are, all of which seem to offer the same (if not, very similar!) services. To make sure that you're getting the most out of contracting, you need to find the umbrella company that's right for you. For a lot of contractors, that's Parasol or PayStream.
Parasol vs PayStream
If you're a contractor in the UK - and you've decided to make the move from being a sole trader or freelancer to working under an umbrella company - choosing the right umbrella company is an important decision. There are a handful of umbrella companies to choose from, but two of the popular options in the market are Parasol and PayStream. Both Parasol and Paystream provide a range of benefits, but the best choice for you will depend on your unique needs and priorities, depending on what you're looking for as a contractor.
Understanding Parasol
If you're looking for an umbrella company that's established and successful, Parasol is likely to be an option that you come across. Established in 2000, Parasol is known for being an umbrella company that's simple and straightforward for contractors to use. It offers a range of services, all of which are tailored to make the contracting a little bit easier.
As you would expect from an umbrella company, Parasol takes care of all your tax and National Insurance contributions (NICs), ensuring that you're compliant with HMRC regulations. You also have the benefit of being eligible for statutory entitlements like sick pay, holiday pay and maternity or paternity leave. With a team of experts on hand to help, Parasol provides one-on-one support to help you manage the financial and administrative side of contracting in the UK, especially when it comes to IR35.
Understanding PayStream
Another option that you're likely to come across is PayStream which, like Parasol, is a leading umbrella company in the UK. PayStream offers innovative solutions for contractors and freelancers, with an emphasis on efficiency and being user-friendly. PayStream's focus is to make managing your finances as simple and straightforward as possible when you're contracting.
One of the most popular features of PayStream is the way it simplifies payroll management, giving contractors access to personalised online portals for tracking payments. With the touch of a button, you'll be able to track payments and see exactly what your business' finances are looking like. PayStream also provides IR35 support and compliance checks, helping you to understand your tax status and obligations, minimising the risk of compliance errors.
In addition to umbrella services, PayStream also offers limited company accounting for contractors who prefer to work through their own limited company. This means that if you do decide to transition from being a sole trader to a limited company contractor, you can still use PayStream.
Comparing Parasol vs. PayStream
With Parasol and PayStream both being extremely popular, you'll probably find yourself trying to decide between the two. Neither are likely to be a bad choice, as they're both regarded as ticking a lot of boxes for contractors. But, you might find that one matches your needs and requirements slightly better.
- Experience and Reputation - Both Parasol and PayStream are established names in the umbrella company industry, each with over many years of experience. Parasol is widely recognised for its contractor-first approach, whereas PayStream is known for innovation, technology and tools that simplify financial management.
- Compliance and IR35 Support - Parasol priorises compliance and IR35, which is important if you want to make sure your tax and NICs are being paid correctly. PayStream also provides compliance tools and advice, but the company tends to focus on helping contractors to have a more 'hands on' approach.
- Ease of Use and Technology - If simplicity and support are your priorities, Parasol is likely to be the better fit. It has a straightforward system and a dedicated team for administration, so you can focus on your contracting. PayStream is likely different, as it offers MyMax, which allows you to track payments and manage your finances in real time. This makes PayStream a good fit if you're tech-savvy and planning to incorporate self-service tools into working under an umbrella company.
- Fee Structure - Both PayStream and Parasol are open, honest and transparent about their pricing; you're not going to get any unexpected costs or fees. But, a lot of contractors agree that PayStream generally offers more competitive rates. This is likely to be something you'll want to consider if you're trying to keep your costs low and your take-home pay high.
- Additional Services - Parasol focuses solely on umbrella solutions, but PayStream provides options for both umbrella services and limited company accounting. If you're considering transitioning to a limited company structure in the future, PayStream might be the better option. You can move from contracting under an umbrella company to contracting under a limited company, knowing that you don't have the headache of also finding another accounting company to work with.
Umbrella Company vs. Limited Company
Of course, working under an umbrella company isn't your only option. As a contractor in the UK, you also have the option to set up a limited company for contracting. This works in a slightly different way to working under an umbrella company, giving you slightly more freedom when it comes to maximising your tax-home pay, claiming expenses and handling your finances in a tax-efficient way.
A limited company is a separate legal entity that you own and manage, and you're the director. This makes you responsible for the business' operations, including invoicing clients, filing accounts and ensuring that you're operating in a tax-compliant way. One of the main benefits of contracting through a limited company is that it can offer significant tax advantages, including the ability to take a combination of salary and dividends, which often results in lower overall tax liability. Plus, you have full control over your business decisions, finances and how you pay yourself.
After you've paid the relevant taxes, the business' profits belong to you, and you can decide how to use them. However, the downside is that you'll need to manage tasks such as bookkeeping, VAT returns and filing annual accounts, which can be time-consuming and complex.
What's the Difference Between an Umbrella and Limited Company?
There are a few key differences between an umbrella and limited company, and familiarising yourself with these is key if you want to find the approach to contracting that works best for you.
- Admin - Umbrella companies handle all administrative tasks for you, but that's not the case when you set up a limited company. With a limited company, you're responsible for managing accounts, taxes and legal obligations. Though you can hire limited company accountants to help, this does come at a cost.
- Tax Efficiency - Umbrella companies operate under the PAYE system, meaning your taxes are automatically deducted from your earnings. This doesn't give you much flexibility when it comes to optimising them. Limited companies allow for more tax planning, enabling you to maximise take-home pay through dividends and expenses.
- IR35 - If your contracting falls within IR35, an umbrella company will make sure that you're compliant, meaning you don't have to worry about the legal ramifications of getting things wrong. But, if you're a limited company contractor, you need to navigate IR35 yourself.
- Cost - Umbrella companies charge a fee for their services, and these are usually a small percentage of your income. Whereas running a limited company involves costs that an umbrella company doesn't - such as accountancy fees - the overall savings tend to outweigh these expenses.
At Go Limited, we're often asked whether it's better to join an umbrella company or set up a limited company, and there are pros and cons of each. If you're just starting out as a contractor, or if you want to keep things simple, you might find that an umbrella company is beneficial. It can also be helpful if you're working on contracts that fall within IR35. But, if you're earning higher rates, or if you want more control over your business, the potential tax savings and flexibility often make setting up a limited company worthwhile.
