little help...

[malvolio]

See - somneone always comes up with a sensible approach... Now I know why I went into management!

[rooney]

Paye

Although I'm not an accountant I believe payroll systems will multiply your current week / month gross earnings by 52 /12 to work out the appropriate amounts in each tax band. So if your are earning £6K a month you will certainly be paying high rate tax from day 1.

There are of course other reasons why you pay a lot of tax such as your tax code and previous earnings in the current financial year. So if you have a low tax code and have earned loads already this year a higher proportion of your earnings will be taxed at the higher rate.

I would also suggest it is not in the umbrellas interest to tax you highly as they will probably get hassle and bad press for doing so.

[jonnyh]

Emergency Tax

I got caught with this once the main issue with the payment is that you are being taxed on a week1 or emergency tax code. What this means is that each time you are paid only 1 weeks tax allowance will be applied to your salary. This does mean for example if this was a monthly payment you will be paying a much larger amount of tax as rather than getting 1/12 of your tax allowance you are actually only getting 1/52 of your tax allowance in each payment.

Once the Umbrella got my up to date tax details from the IR then my tax code was updated and I did get a rebate for over paid tax

[IR35 Avoider]

Something I got caught with, I once used an umbrella for a couple of months before returning to my limited. As a director of your limited, your tax and NI is done one an annual basis, but as a mere employee of an umbrella if you earn (say) 6K a month for two months then don't work the rest of the year, you pay NI for the first two months as if you are going to earn 6K a month for the whole year, and you can't get it back even though your eventual annual salary is nothing like that. I lost several hundred pounds in extra NI by not moving back to my ltd two months earlier at the start of the tax year.

Tax is not a problem because it all sorts itself out in the end once your tax code is correct and your tax return done.

[xoggoth]

Malvolio is correct. For those without crystal balls and working according to IR calculation methods anyhow.

[planetit]

Malvolio is correct. For those without crystal balls

Why would I need a crystal ball? As an employee I know what my salary this year will be - I set it.

Unless we are talking about FAIL IR35 (or VERY low company income) in which case you don't know your salary until the end of the year.

[malvolio]

You might know your planned income (as I know mine), but does the umbrella? You may be out of work, you may switch to a different company, you may even bin umbrellas completely and go the LtdCo route. Taking clients' money in anticipation does not seem totally ethical or justifiable to me, and you can bet it's not getting paid to Hector until it absolutely has to be, at the umbrella's company year end.

[rooney]

PAYE payments

All company's have to pay any tax/ni they deduct by the 19th of the following month. The vat will be paid quarterly but of course once they go over a certain size they have to settle on account monthly (i.e. they work out how much they paid last quarter and then they pay just short of a third of that each month).

[malvolio]

What?

[Denny]

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).

That only works if you're a permy. It's completely daft to allow that situation if you're contracting. What if you don't work that long?