Quick question - NI Calcs

[sage@reillymcmordie]

Working under an Umbrella -

Monthly Earnings = 3000
Expenses + Fees = 1000

The PAYE calc is based on a figure of £2000...correct?

Is the NI (E/R + E/E) figure from the monthly HMRC tables based on £3000 or £2000?

Please confirm that I am not going mad....

You would enjoy a salary based upon £2000 less the amount of NI

[Bengal]

The tax and NIC should be calculated on the £2,000 and after taking into account your personal allowance (for PAYE) and Earning threshold (for NIC) which in any event are the same amounts or thereabouts.

I'm intrigued by the comment about taking off the employer's NIC from the (eg) £2,000 to arrive at the gross pay. This is illegal, an employer cannot transfer the employer NIC liability to the employee (unless of course what they are doing is taking a cut which happens to be equal to the employer's NIC).

[Archangel]

The tax and NIC should be calculated on the £2,000 and after taking into account your personal allowance (for PAYE) and Earning threshold (for NIC) which in any event are the same amounts or thereabouts.

I'm intrigued by the comment about taking off the employer's NIC from the (eg) £2,000 to arrive at the gross pay. This is illegal, an employer cannot transfer the employer NIC liability to the employee (unless of course what they are doing is taking a cut which happens to be equal to the employer's NIC).

When you work via an umbrella you become an employee. The Umbrella invoices the Agency (or client) £3000 (in this example). From this it deducts Allowable Expenses (which are then paid gross to the worker), its fee, and an amount equivelent to the employers NI. What is left is the employees gross salsary. Employers NI is then paid on this, and Employees NI and PAYe deducted.

[Bengal]

When you work via an umbrella you become an employee. The Umbrella invoices the Agency (or client) £3000 (in this example). From this it deducts Allowable Expenses (which are then paid gross to the worker), its fee, and an amount equivelent to the employers NI. What is left is the employees gross salsary. Employers NI is then paid on this, and Employees NI and PAYe deducted.

OK now I understand.

[BlightyBoy]

OK, now I understand.

3K is what is invoiced, however, 2K is what is "earned", the 1K being "legitimate" expenses.

Then I would have to withdraw my original statement and concur with the opinion that NICs are calculated on the 2K

[AlfredJPruffock]

When you work via an umbrella you become an employee. The Umbrella invoices the Agency (or client) £3000 (in this example). From this it deducts Allowable Expenses (which are then paid gross to the worker), its fee, and an amount equivelent to the employers NI. What is left is the employees gross salsary. Employers NI is then paid on this, and Employees NI and PAYe deducted.

I have often pondered as to whether this arramgement of having the contractor pay not only his own employee contributions but also his employers NI contributions is in fact legal ?

Employers NI implies that his employer (ie the Brolly company) should pay this contribution - not the employee.

Any thoughts on this ?

[BlightyBoy]

They do pay the employers contributions.

They just dock it off your salary first.

[AlfredJPruffock]

They do pay the employers contributions.

They just dock it off your salary first.

Aha - so there is nothing to stop Industry as a whole from passing the Employer NI contributions to its workforce ? Surely this arrangement is suspect ?

[Bengal]

In general it is illegal to pass on the employer NIC cost to the employee. But if what the umbrella is doing is calling it a "fee" for doing what they do for you then it wouldn't be "employers NIC" cause they will calculate employer NIC on what they eventually pay you and pay that to HMRC.