46% Tax? You've got to be joking..

**Patrick@Intouch** · 3 May 2017, 12:17

This is the way that Umbrella workers are taxed. Does seem a tad harsh but, at the moment, them's the rules.

You would also benefit from your personal allowance bringing the average rate down but may also be subject to higher rate tax at 40% which might bring it back up again.

Is your contract with a public sector client or a private sector client?

If public sector would this be considered to be caught by the new rules for off payroll public sector workers? If it's not or if it's a private sector contract which is outside IR35 then it may be worth considering using a limited company to trade through. This would give you more control over how you are remunerated.

If public sector and caught by the new rules then there isn't much that you can do to mitigate this, other than negotiating on your day rate!

**TheFaQQer** · 3 May 2017, 12:26

Originally posted by jkgom View Post

- 0.5% Apprenticeship levy (umbrella company also provided little explanation for this one)

Every company with a payroll bill of over £3 million must contribute 0.5% of that to the government to pay for the apprentice schemes.

**original PM** · 3 May 2017, 12:27

Originally posted by jkgom View Post

Hi all,

My umbrella company have quoted that I pay a 46% tax rate:
- 12% Employees NI
- 20% Income Tax
- 13.8% Employers NI (Is this not like paying for somebody else's tax?!)
- 0.5% Apprenticeship levy (umbrella company also provided little explanation for this one)

Absolutely happy to pay tax but this seems outrageous to me! Who is legally accountable if my tax is wrong? Surely that's what I'm paying the umbrella for..

At this rate I can earn more in a cafe in Australia, what's the point...

You need to understand that the rate you are being quoted will include the fact that you need to pay employers NI and so is higher than if you went PAYE directly.

Used to be a benefit when able to claim expenses to offsite the taxable amount but nowadays not so much.

As Patrick says look at going limited but if you are not planning on contracting for that long it may not be worth the extra effort...

You also need to understand that say you are a PM on £400 per day - that is equivalent to £92 k per year (assuming 5 days per week and 46 weeks per year worked) which is probably double the average PM perm salary.

**BrilloPad** · 3 May 2017, 12:30

Why not go limited?

**NotAllThere** · 3 May 2017, 12:35

Originally posted by jkgom View Post

...
- 13.8% Employers NI (Is this not like paying for somebody else's tax?!)

Who else would pay it? Client pays agent - business to business, no NI. Agent pays umbrella - business to business, no NI. Umbrella pays you - employee and employers NI becomes due. And that's coming out of the fee the agent pays the umbrella.

**jamesbrown** · 3 May 2017, 13:04

What you need to understand is that, over the years, HMG has become exceptionally good at hiding a large whack of (employment) tax from the large majority of the voting public (employees). Once you understand the true costs of employment, as distinct from net pay and benefits for employees, it all becomes clear. Employees ultimately pay for all taxes on employment.

**jkgom** · 3 May 2017, 13:10

Thanks everyone, I'm only a few weeks in the country and neither recruiter or umbrella explained this to me until I probed (quite a few times until I could get a direct enough answer from the manager).

I work for an NHS trust so I guess this means little room to move unless I can get PAYE direct from trust...

What is a PM?

What is my personal allowance Patrick?

**malvolio** · 3 May 2017, 13:20

Originally posted by jkgom View Post

Thanks everyone, I'm only a few weeks in the country and neither recruiter or umbrella explained this to me until I probed (quite a few times until I could get a direct enough answer from the manager).

I work for an NHS trust so I guess this means little room to move unless I can get PAYE direct from trust...

What is a PM?

What is my personal allowance Patrick?

Good to know you understand what you're doing...

Read the guides on the right of the page. Go to www.ipse.co.uk and download both their Guide to Freelancing and IR35 in the Public Sector, both on the front page*. Then you will be enlightened.

* Actually the second one isn't any more, but it is down here

**Patrick@Intouch** · 3 May 2017, 13:41

Originally posted by jkgom View Post

Thanks everyone, I'm only a few weeks in the country and neither recruiter or umbrella explained this to me until I probed (quite a few times until I could get a direct enough answer from the manager).

I work for an NHS trust so I guess this means little room to move unless I can get PAYE direct from trust...

What is a PM?

What is my personal allowance Patrick?

The standard personal allowance for 2017/18 would be £11,500 and this is the amount that can be earned before your income becomes subject to tax.

NHS = Public Sector and most likely inside IR35 so not much wriggle room at all, unfortunately.

46% Tax? You've got to be joking..