Umbrella Company "Agreed Deduction"

[Nitro]

Hey everyone

New to this forum, new to contracting too - so hopefully I can come here for advice when I need it and give advice out as I learn myself.

I got my first contract in September. It has been extended twice now and currently I'm working until May.

As it was my first contract, and I didn't know what to expect, I went with an Umbrella company (Atlantic) and have been with them since. Thankfully, I think I know now that contracting is right for me - so I do plan to go Limited soon.

That being said, Atlantic have provided me monthly with an itemised payslip since September, which makes sense for the most part. It has tax, NI, pension, expenses etc. The only thing that doesn't make sense is an item on there called "Agreed Deduction". This month, it was just under £1000. This is NOT my agreed monthly fee with Atlantic (which is £89) - this is entirely separate.

I've totted up this "Agreed Deduction" and in total thus far it has come to £4200+. Obviously, quite a bit of money that I've never seen.

Does anyone know what this is? I've asked Atlantic, and they said "this is always worked out at 13.8% of your period gross for tax and is the same for all contractors. The amount is to cover employment costs consisting mainly of employers national insurance with a small amount set aside to cover any statutory entitlements."

That doesn't make sense to me... where have they got the 13.8% from?

Can anyone shed some light in layman's terms? Should I be charged this "Agreed Deduction"? Who is that money going to? I've only agreed to give Atlantic £89!

[LisaContractorUmbrella]

Umbrella companies, like any other employer, have a legal obligation to pay Employer's National Insurance contributions which are taken as a percentage of earnings over a threshold - that percentage is 13.8%.

The umbrella company will have a business to business contract with the agency/end client and will invoice them for the work that you've done on a monthly or weekly basis at the rate that has been agreed in the contract. The umbrella company will have a contract of employment with you (you should have signed one before the start of the contract). They will pay you a salary which is calculated as - the amount that the agency has paid them for the work that you've done LESS their margin (£89 per month in this case) LESS the amount that the umbrella company is legally obliged to pay for Employer's National Insurance.

The phrasing on the payslip is odd as an 'agreed deduction' is usually a deduction from earnings; the amounts in question have not been deducted from your salary but from the income that the umbrella company received from the agency/client.

HTH

[Nitro]

the amount that the agency has paid them for the work that you've done LESS their margin (£89 per month in this case) LESS the amount that the umbrella company is legally obliged to pay for Employer's National Insurance.

So this I understand, except the last bit. I understand they are legally obliged, but see my next point... oh and as an aside, I take it if I was Limited and in complete control of my payroll, this wouldn't be a factor?

The phrasing on the payslip is odd as an 'agreed deduction' is usually a deduction from earnings; the amounts in question have not been deducted from your salary but from the income that the umbrella company received from the agency/client

But, I do believe it has been deducted from my salary... as it I can see it on my payslip. Would I be able to show you this part of my payslip and you may be able to ascertain what it is? That's if you don't mind, of course.

[LisaContractorUmbrella]

Hi Nitro - happy to have a look at the payslip for you - you can email it to me - [email protected]

If you had a Limited Company and you were inside IR35, your tax position would pretty much be as it is now. With a single person Ltd Co you are both employee and employer so both Employee's and Employer's NIC's are payable; it's only if you are outside IR35 that this changes.