Umbrella Pay issues

[radish2008]

I know - hurts doesn't it. But that's how it works I am afraid.

Setting up a Ltd company won't help much unless you can get out of IR35 - and I think you need a bit more experience with how contracting / IR35 work before you can safely do that. I would advise first time contractors to get through an umbrella for the first contract and take the tax hit.

Your surpise is not unique. A lot of people don't understand the costs of being a contractor until their first "payslip" arrives, especially if/when IR35 applies.

I bet no-one made it clear to you (agent, umbrella etc.) that out of your hourly rate you would be hit for so much tax.

However, the blame cuts both ways. At ClientCo, I permie heard how much contractors were getting paid per hour and promptly loaded up Calculator and did X * 40 * 52 and his eyes widened at how much he thought we got.

I didn't bother trying to educate him.

this is a really good post and mirrors my experience - I was not happy getting my first pay through an umbrella and luckily it was only a month contract - the next 2 or 3 extensions went through my limited - it's more work but staisfying and if you want to run your own business the only way to go. umbrellas always promise you more to get you on the hook but at the end of the day you are just an employee

[Beefy198]

Setting up a Ltd company won't help much unless you can get out of IR35

Not just that - at £13.33 an hour would it be worth it?

[LisaContractorUmbrella]

I am currently working as a contractor (first assignment so be gentle with my ignorance!) and I'm pretty sure that I am being underpaid. When I signed up with the umbrealla company I was promised an estimated (oxymoron there...) 79% or my gross pay. I am on an hourly rate of £13.33/hour and worked 39.75 hours last week (bare with me through this example please). This works out at £529.87 gross pay. So if I were to get the alleged 79% of this it would be £418.60.

My payslip has come through at £365.94 which is 69% or my gross and most other weeks it is closer to 66%.

For about 2 months my umbrella company have been telling me that this difference is due to the fact that I am on an emergency tax code (603L Week 1). This is true as my previous employer took about 8 weeks to send my P45 through. I have finally got this through to my umbrella company and they have no informed me that my emergency tax code is correct and that I will be taxed on a week by week basis. I don't really understand this but it is fine as I do not believe the issue comes from over paying in my income tax.

I got back to them and asked them for a breakdown of how my pay was calculated and they got back to me with this:

Please see the deductions from your pay as follows;
Invoice amount £529.87
-£40.57 Employers NI (12.8%)
-£27.50 PPA Cost (weekly service fee)
-£39.86 Business Expenses
You are then taxed & NI’d on the remaining £421.94
Amount £421.94
-£34.86 Employees NI (11%)
-£61.00 PAYE (tax @ 20% after £116.06 free pay allowance applied)
+£39.86 Business Expenses
= £365.94 Total payable.

For a start these number simply do not add up. The Employers NI should be 12.8% of my income. This is £64.30 not £40.57. Same again with the Employees NI.

Most distressing to me is the fact that I am paying both Employees and Employers NI. Is this just to do with the way that umbrella companies set you up as "a director of your own company"?


Normally I would put this down as just one of those things that hasn't worked out as well as I'd hoped but I have a colleague who is with the same umbrella company who is earning £3.33 less per hour (about £130/week) than me but is getting paid pretty much the same weekly NET amount.

Any advice that anyone can give me will be much appreciated.

Your net earnings are correct. Your umbrella company should never have promised you a return of 79%; in order to achieve this sort of figure you would need to be claiming expenses of about £200 per week, which is obviously no where near reality.

The fact that you are on a week 1 tax code makes no real difference to your tax home pay. You will still have the same tax free allowance each week as you would if you were on a standard 603L tax code - the only difference is that the allowance is not cummulative. This means that, if you are not paid for a couple of weeks for whatever reason, your tax free allowance will be £6035 divided by 52 rather than £6035 divided by 52 multiplied by 3 (1 allowance for that week plus 2 for the weeks that you did not get paid).

HTH