How self-employed contractors get paid in the UK: the routes, compared

You have been offered a contract. Six months on a site outside Doncaster, or a three-month locum block, or a rolling cloud engineering booking. The rate is agreed. Then the consultant asks how you want to be paid, lists three things you half recognise, and waits for an answer.

Most contractors answer that question once, early on, taking the advice of whoever happened to be in the room. Then they carry the answer for a decade without revisiting it.

It is worth understanding properly. The route you are paid through decides who your employer is, what happens to you between assignments, how much administration lands on your kitchen table, and what the day rate on the contract turns into by the time it reaches your account.

The routes#

Agency PAYE. The agency employs you directly and runs payroll itself. You are an employee of the agency for the duration of the assignment. Tax and National Insurance come off at source, you accrue holiday, and you are auto-enrolled into a pension. Common in healthcare and education, less common in construction and engineering.

Employed PAYE through a payroll provider. A provider takes you on as an employee and runs PAYE on your assignment income. You have one employer across multiple bookings and multiple agencies, which matters if you hold several at once or move between them frequently. Continuity of employment is the real feature here: a single employment record, holiday accrual that does not reset every time an assignment ends, and a pension that follows you rather than starting again. It is a legitimate, widely used arrangement and for a lot of contractors it is the right one.

PAYE umbrella. An umbrella company employs you across assignments under PAYE and takes its margin from the assignment rate. You have one employer as you move between bookings: a single employment record, holiday accrual that does not reset, and a pension that follows you. Since 6 April 2026 the agency holding the contract with the end client is jointly and severally liable with the umbrella for its PAYE and National Insurance.

CIS. Construction only, and it is a deduction scheme rather than an employment model. You remain self-employed; the contractor paying you deducts 20% from the labour element of your invoice if you are registered and verified with HMRC, 30% if you are not, or nothing if you hold gross payment status. Materials, plant hire and certain other costs are outside the deduction. The money deducted is a payment on account against your eventual tax bill, not a final tax — you reconcile it through self assessment, and a great many subcontractors are owed a refund each year without realising it. We cover this in detail in CIS explained for construction subcontractors.

Your own limited company. You contract through a personal service company you own and direct. Maximum control, maximum flexibility on pensions and timing, and maximum administration: accounts, corporation tax, VAT if you cross the threshold, and an IR35 status position to hold. This route rewards contractors with long assignments, a genuine business-like practice, and the appetite to run a company properly.

Sole trader. You register, you invoice, you file a self assessment return. No company to maintain, no corporation tax, and no legal separation between you and the business. Sole trader management is also a common engagement route for work outside the UK, particularly in Ireland and the EU.

Paid for work outside the UK. A different question entirely, and one that catches people out. If the assignment is in Dublin or Rotterdam, UK payroll is usually the wrong instrument. See Ireland and Europe.

What actually separates them#

To see the difference in money on your own rate, the take-home comparison runs PAYE, umbrella, limited company and CIS side by side. Status comes first, though: the working-practices triage shows which questions HMRC's own tool may struggle with.

Strip away the labels and four questions decide everything.

Who is your employer? Under agency PAYE, provider-employed PAYE and PAYE umbrella, someone employs you and carries the employment obligations. Under CIS, sole trader and your own company, nobody does. That is a genuine trade: employment brings holiday pay, statutory sick pay, pension enrolment and employment rights, and it brings less control.

What happens between assignments? This is the question contractors ask least and regret most. If you work in a sector where bookings are short and frequent — locum shifts, fit-out work, project engineering — a route that treats each assignment as a fresh start creates a new starter process, a new pension, and reset holiday accrual every few weeks. A single continuing employer across all of it removes that friction.

Who does the administration, and how much is there? Agency PAYE, provider-employed PAYE and PAYE umbrella: very little for you. CIS and sole trader: a self assessment return each year and records worth keeping properly. Your own company: a real ongoing obligation, and one you need either the time or an accountant for.

What comes out of the assignment rate? The important and frequently misunderstood point. Where you are employed for an assignment, the rate quoted to the agency has to cover employer costs — employer's National Insurance, the apprenticeship levy where it applies, employer pension contributions and holiday pay. Those are costs of employing somebody, they exist under any employment route, and they are not a margin. A rate quoted as an assignment rate and a rate quoted as your gross pay are two different numbers, and the gap between them is not evidence that anybody is taking advantage of you. Ask which number you are being told, every time.

Two 2026 changes worth knowing about#

From 6 April 2026, the agency holding the contract with the end client is jointly and severally liable with an umbrella for the PAYE and National Insurance on its workers' pay — or the end client, where it contracts with the umbrella directly or through a connected or overseas agency. This came in through section 24 of the Finance Act 2026. The umbrella still employs you and runs the payroll; if it does not pay the tax over, HMRC can pursue the agency for it. For you as a contractor, the practical effect is that agencies are now paying much closer attention to which providers they will work with. If an agency has trimmed its provider list, that is why, and it generally works in your favour.

The off-payroll working small company thresholds rose on 6 April 2026. A client is now small if it meets two of three tests: turnover not exceeding £15m (previously £10.2m), balance sheet total not exceeding £7.5m (previously £5.1m), and 50 employees or fewer. Roughly 14,000 companies moved from medium to small. If you work through your own limited company and your client is now small, the IR35 status determination reverts to you and your company rather than sitting with the client. Some contractors have gained flexibility from this without noticing; some have quietly acquired a responsibility they are not documenting.

Questions to ask before you agree to a route#

• Is the number you have quoted me an assignment rate or my gross pay?
• If someone is employing me for the assignment, what is the fee, stated in pounds per week or per month rather than as a percentage?
• Can I see a Key Information Document before I agree to anything? You are entitled to one.
• Will I get a payslip that shows the deductions separately and legibly?
• Does the client or the framework require a particular route? Public sector frameworks and some large end clients do, and that constrains the answer regardless of preference.
• If I hold two or three bookings at once, does this route keep me on one employment record or start a new one each time?
• For CIS: am I registered and verified, or am I about to be deducted 30% because nobody checked?

When the honest answer is that nothing needs to change#

Plenty of contractors are already on the right route. If you hold one long assignment with a client that has no framework requirement, you run your own company competently, and your accountant is doing their job, there is nothing here for you to fix.

Equally, some things cannot be fixed by changing route. If the rate is too low, a different payroll model will not raise it — that is a rate conversation with the agency, not a payroll one. If the client mandates PAYE, no amount of comparison changes the mandate. And if someone offers you a take-home figure that beats every compliant provider by a distance, describing the extra as a loan, an advance, an annuity or a grant, that is disguised remuneration and the liability lands on you, years later, with interest. Walk away from it.

How Freelancer Supermarket helps#

We are an independent consultancy and an introducer. We are not a payroll company and we are not your employer — we do not run the payroll ourselves.

What we do is the assessment and the introduction. We look at your sector, where you are placed, how many bookings you hold and what your client or framework requires, we set out the routes that genuinely fit side by side, and we introduce you to two or three providers from a panel we have checked. Not a directory to browse — a shortlist, with a reason attached to each name.

It costs you nothing. The provider you engage pays us, and we are paid the same whichever one you pick, so there is no commercial reason for us to push you toward a particular product. If we look at your arrangement and it is already fine, we will tell you that, and there is no fee riding on the answer.

We also find contractors work. Recruitment and contractor sourcing and payroll usually arrive together, because the contractor who needs one generally needs the other. And if the problem is less about how you are paid than about who runs the paperwork behind it, see payroll and business support for self-employed contractors.