Umbrella Company Taxes

When you join an umbrella company, you effectively become an employee of theirs and they will pay you your salary (PAYE). We explain how umbrella companies deal with your salary and the deductions they make – so you have nothing to worry about.

• Income Tax – Just like a permanent employee, you will be required to pay income tax on your earnings above the personal allowance of £12,500 per annum.
• Employees National Insurance – This is calculated at 12% of your salary and will be paid to HMRC by your umbrella company.
• Employers National Insurance – As you are employed by the umbrella company but they are not benefitting from the work you do, the Employers National Insurance is passed onto you. It is calculated at 13.8 percent of your earnings. As recruitment agencies are aware of this, they should be uplifting your salary to counteract this deduction to your salary.
• The Apprenticeship Levy – The Apprenticeship Levy is a government deduction that employers must pay. As you an employee of the umbrella company but are not actually working for them, this deduction is passed on to you. It is calculated at 0.05 percent of your salary.
• Holiday Pay – Umbrella companies need to show that they’re paying you Holiday Pay. However, you will notice on your payslip that it is simply a reallocation of your own pay calculated at 12.07% of your earnings. You can choose to have this sum paid directly to you or held back in a lump sum – it’s your decision.
• Margin – The umbrella company will charge a margin for you to use their service. This will usually vary (typically £20 to £25 per week).

You can find out more information about umbrella company payslips on the highly regarded IT Contracting website. All of the deductions to your pay will be stated on the payslip you receive from your umbrella company.

Providing you approach only compliant umbrella companies, you’ll find that they all offer you a very similar take home pay figure. This is because they will all pay you in the same way and will make the same deductions to your salary. The only thing that will vary amongst providers is their margin (the amount they charge to carry out the administration associated with your payroll).

If you find companies offering you noticeably higher take home pay, it is highly likely that they are tax avoidance schemes and should be avoided at all costs. Using these companies can have serious repercussions with HMRC and we recommend you find out more information about the 2019 Loan Charge (recently introduced legislation by HMRC that is designed to punish tax avoiders).

Umbrella Company UK has helped thousands of contractors and freelancers get paid on time. We offer our clients more than simply payroll and when you register, you’ll benefit from £25 million free insurance, Employee Benefits, Same Day Faster Payments and your own dedicated Account Manager.

To register with us or to find out more information, please complete the short form on this page or give our friendly and professional team a call on 01707 669023.

We hope this has helped you find out the information you need about umbrella company taxes. However, if you have some unanswered queries, please visit our umbrella FAQs or contact our team today for advice.