When you land an assignment as a contractor through a recruitment agency, you'll frequently be offered two separate pay rates for the job: one rate to work as an agency PAYE employee, and another rate to work through an umbrella company or your own limited company (LTD).
When deciding whether to use an umbrella company or work through your own limited company, it's worth the effort to consider the impact of IR35. If you fall within IR35, it is usually more cost-effective to work with an umbrella company, and depending on the fees charged by the umbrella, you may even prefer being an agency PAYE employee. Most new to the market contractors are not yet familiar with the responsibilities or processes involved in running their own limited company which effectively removes this option, at least for the first assignment. So it boils down to a choice of two - agency PAYE or umbrella company.
Working PAYE at the agency is certainly the most convenient, but you may want to consider whether an umbrella company will offer a higher take home salary. The added pay can be significant, particularly over the long term, and you have the option to switch umbrella companies at any time... or even move to using your own limited company once you're more familiar with the contracting game.
Being an employee of the agency is not a particularly popular option, for contractors or recruiters. Agency PAYE positions don't normally offer you the ability to offset business expenses against your taxable pay. Umbrella companies do, provided of course you have in fact incurred the expenses being claimed and can prove them with original receipts.
In the end, the most important factor to consider when weighing up the two pay rates proposed by your agency is whether or not the second (or inflated) rate adequately covers the employer's national insurance contributions, holiday / sick pay and payroll administration cost that a recruiter will save by NOT employing you on their books. To put that another way, will you better or worse off once YOU have effectively paid these things by working through an umbrella company or LTD?
I personally use an umbrella company, fast payment and can negotiate with them the take home pay... but of course this will vary from one company to another