little help...

[encavale]

I'd be REALLY grateful if anyone with some knowledge of umbrellas would care to check my most recent payslip, because I think i've been screwed by my umbrella. I recieved about £500 less than I expected. It's my first payslip and I think they have way overcharged me for PAYE tax. The final figure seems paltry considering my rate and expenses. Anyway, here's the skinny:

Gross Total: £6,000.00 (160 hours @£37.5 per hour)

Tax free income:

Schedule E Expenses:£1,129.50
Re-chargeable Expenses: £0.00
Pension Contributions: £0.00
Total Tax Free Income: £1,129.50

Administration Costs:

Umbrella Fee: £54.95

Gross Earnings: £4,815.55
Employers NI: £503.77

Gross Pay for Tax Purposes: £4,311.78

Deductions

PAYE: £1,569.82
Employees NI: £253.75
Total Deductions: £1,823.57

Additions
Schedule E Expenses: £1,129.50
Re-chargeable Expenses: £0.00
Total Additions: £1,129.50

Payment due in your Account
£3,617.71

[xoggoth]

NI will be possible as is based on actual month but not sure anyone can really say about tax just by looking at one payslip. What is your tax code?. What are your gross pay (not inc. employer's NI) earnings and tax in year before this month? You could be on an emergency tax code for some reason. You will get any overpayment back eventually.

I would send you an excel calculator but it is so long since I paid any PAYE it will be out of date. If you do a search on google you should find several sites that will check your employee NI and Tax. Ask Jeeves is often much better for dull UK things like that. The figure you give for employer's NI is exactly right.

[Denny]

I'd be REALLY grateful if anyone with some knowledge of umbrellas would care to check my most recent payslip, because I think i've been screwed by my umbrella. I recieved about £500 less than I expected. It's my first payslip and I think they have way overcharged me for PAYE tax. The final figure seems paltry considering my rate and expenses. Anyway, here's the skinny:

Gross Total: £6,000.00 (160 hours @£37.5 per hour)

Tax free income:

Schedule E Expenses:£1,129.50
Re-chargeable Expenses: £0.00
Pension Contributions: £0.00
Total Tax Free Income: £1,129.50

Administration Costs:

Umbrella Fee: £54.95

Gross Earnings: £4,815.55
Employers NI: £503.77

Gross Pay for Tax Purposes: £4,311.78

Deductions

PAYE: £1,569.82
Employees NI: £253.75
Total Deductions: £1,823.57

Additions
Schedule E Expenses: £1,129.50
Re-chargeable Expenses: £0.00
Total Additions: £1,129.50

Payment due in your Account
£3,617.71

Some umbrella schemes charge 40 per cent tax immediately on presumed earnings for the tax year based on your hourly rate. This will, of course, be adjusted for when the final annual fee is assessed and any backtax will be given back to you which should be substantial if you don't actually reach the 40 per cent tax band.

That's what put me off using Parasol. The tax year had only just started and my earnings very low at that point, but becuase of my hourly rate they wanted to tax me 40 per cent immediately. That meant I was getting just over half of my gross monthly fee with no allowances made for the initial tax free allowance and incremental tax rates at 10 and 22 per cent respectively. I want a system that taxes me incrementally according to how much I've earned up until I genuinely reach the 40 per cent threashold according to my payslips. Otherwise the government are effectively banking some of my money.

[malvolio]

No, they're not taxing you at 40%. They are merely taking an arbitrary 17% (at least) of your earnings for their own use until year-end. And of course, they make the interest on it instead of you.

And people persist in thinking Umbrellas are a good idea...

[tim123]

Some umbrella schemes charge 40 per cent tax immediately on presumed earnings for the tax year based on your hourly rate.

That's what put me off using Parasol. The tax year had only just started and my earnings very low at that point, but becuase of my hourly rate they wanted to tax me 40 per cent immediately. That meant I was getting just over half of my gross monthly fee with no allowances made for the initial tax free allowance and incremental tax rates at 10 and 22 per cent respectively. I want a system that taxes me incrementally according to how much I've earned up until I genuinely reach the 40 per cent threashold according to my payslips. Otherwise the government are effectively banking some of my money.

This is how the tax tables work. You are wrong to say that you got no allowance for the 20% band, you did. You get 1/12 of the allowance each month.

You don't get taxed in month 1 all at 22% until it is used up, it is apportioned over the year. It all sorts itself out at Month 12 (unless you don't work that month)

I want a system that taxes me incrementally according to how much I've earned up until I genuinely reach the 40 per cent threashold according to my payslips. Otherwise the government are effectively banking some of my money.

Legally you can't have this, even if you do it yourself. If you do operate a PAYE system like this and the IR audit you they will fine you.

tim

[MarillionFan]

Question

To answer the question (as opposed to the rest of the guff above)

A quick scan of that appears to be in the right area to me. They have taxed you as being inside IR35 so you have to pay the Employers NI contribution.

Teach you for not being a real business.

Plus. You are obviously not VAT registered so I you've lost a chunk of that on not being able to claim back the VAT on your expenses.

If you are going to be invoicing that amount a month, go Ltd.

[malvolio]

Sorry Tim123, but we will have to agree to disagree on that. Things may have changed since I last wrote a payroll system (which was longer ago that I care to remember!), but the calculation was always done incrementally - you have earned this much gross to date so your tax lliability is now £x, you have paid £y tax to date, you current tax liablility is now £x - £y. Allowances and bands were applied to the gross amount to date at each calculation point (usually monthly, occasionaly weekly). And it is not that unusual to get a tax demand for the "balance of your account" off the end of the tax year, is it?

So I think taking 40% from day 1 is sharp practice and an easy way to top up your deposit account. But then, MyCo looks after me, not someone else!

[planetit]

So are you saying that in the first month you apply the full tax free allowance to your salary, then use up all the 10% band, then the standard rate? This is definitely not they way it’s supposed to work. Not sure if it’s exactly illegal, but it’s not the proper way of running a PAYE system. Your allowances are spread over the year, so your tax and take home should be the same each month (assuming your salary and tax code stay the same).

[boredsenseless]

You are as far as I know allowed to operate either on an acrual or aggregate system when it comes to paying tax.

However the most popular and defacto PAYE system is based on aggregate earnings. Therefore your tax allowances are split into 12s across the year.

I don't know of any company that doesn't operate in this way since the collection of tax is the company's responsibility so if you bugger off after you've used up your allowances they could be looking at a tax bill if you play the system.

[tim123]

Anyhow, since we started this discussion I have stuck the numbers into a PAYE calculator (using pro rata-ed allowances) and the amount taken for tax is about 400 GBP too high using a normal single person's allowance, and 200 too high for a 0 allowance, so something is actually wrong.

tim