Before you register with an umbrella company, it’s a great idea to request a tailored take home pay illustration to get an idea about what your net take home pay will be after deductions. Continue reading to discover how umbrella company illustrations are formulated and why companies may be quoting you differently.
Tax code used in the illustration
To ensure you are given the most accurate illustration possible, Umbrella Company UK will base our calculations on the standard 1257L tax code. This tax code includes the £12,570 tax-free personal allowance. It is important to ask which tax code has been used to calculate your take home pay illustration as some providers may use a tax code that gives you a greater tax-free allowance, so your take home pay seems higher.
If you are a Scottish taxpayer, please let us know. We will adjust the illustrations to use the Scottish allowances and use a Scottish tax code when calculating your take home pay illustration. This will give you a much more accurate idea of what you can expect to retain as an Umbrella Company UK employee.
It is important to note that previous earnings and any tax paid in the current tax year are not considered because we do not receive your tax code until after you have registered. Therefore, this may affect the amount of tax due, and your actual net take home pay once your umbrella company pays you.
Number of weeks used in the illustration
To ensure our illustrations are as accurate as possible, we base our weekly illustrations on 48 working weeks per year. Our monthly illustrations on 52 working weeks use a calculation using the average number of working days per month, 21.66. Calculating take home pay illustrations this way gives the most realistic estimation of net take home pay possible without having finalised information about a worker’s assignment, pay, tax code and previous earnings. Your take home pay will vary depending on how many days you work in a given week or month. If your working pattern is different, please let us know, and we will adjust our calculations.
Is Holiday Pay advanced or accrued?
When you register with an umbrella company, you can choose to have your holiday pay advanced and paid alongside your weekly or monthly salary, or accrued and paid into a holiday pot you can draw from at a later date.
If you choose to have your holiday pay advanced, you’ll see your holiday pay allocation on your payslips. This is the most popular choice by our employees. If you want to have your holiday pay accrued, your net take home pay will be reduced, and your holiday pay allocation (25%) will be retained by the umbrella in a separate pot. This pot is your holiday pay, and if you would like to claim it as a lump sum – contact your umbrella and they’ll be happy to assist.
When you register with Umbrella Company UK, you’ll be asked whether you would like to have holiday pay advanced or accrued. If you change your mind while using our service, please get in contact with our Customer Services Department and they’ll be happy to help.
For more information about holiday pay and how it works, please read our blog: Holidays and contracting through an umbrella company.
As a result of supervision, direction and control legislation introduced in 2016, most umbrella companies will not process expenses for their employees. Unfortunately, some umbrella companies will include expenses in their take home pay illustrations to present contractors with a more favourable take home pay projection. Once you register, you may find you cannot claim these expenses, and as a result, you will see a decrease in your net take home pay.
Abatement of the Personal Allowance
Once your income exceeds £100,000, your tax-free allowance will be reduced by £1 for every £2 that your adjusted net income is above the threshold. When you hit £125,000 in projected taxable salary, you will completely lose your annual tax-free allowance. If the abatement applies to you, always check that the umbrella company has accounted for it in the take home pay illustration.
Student loan deductions
Umbrella Company UK will always ask if you are currently paying back a student loan when you request a take home pay illustration. We will include student loan deductions in your calculation to ensure your illustration is as accurate as possible.
Workplace Pension Scheme
After 12 weeks of employment, you will be enrolled on a workplace pension scheme with the umbrella company’s chosen pension provider. It is a legal requirement for umbrella companies to enrol you into a pension; however, you can opt-out if it is not something you require. Most umbrella companies will not include pension deductions in their illustrations as most contractors opt out. However, if it is something you are interested in, please let us know, and we can include it for you.
Salary sacrifice is a great way to increase the amount you allocate to your pension each time you are paid. It is an incredibly tax-efficient way to save for retirement as contributions to your personal pension pot are not eligible for tax or National Insurance. If you are interested in finding out more about salary sacrifice or would like to request a tailored take home pay illustration, please contact Umbrella Company UK today.
Are you interested in a tailored take home pay illustration?
If you are interested in finding out more about our service or would like to request a tailored take home pay illustration, please give our expert team a call on 01707 669023. You can also request a callback for a more suitable time, and one of our consultants will be in touch.
We look forward to discussing your payroll options with you!