UK Tax & Salary calculations

[BtfBA]

Hi,

Before asking for your precious help in understanding the tax & calculations standards in the UK, I would like to thank the staff and the community for having a professional space where one can pick some relevant information.

I am a BA in invesment banking, willing to relocate in London. I have got an opportunity in mind, but I am currently in the process of computing what will be ultimately my take home pay after tax.

Using the calculator available in this website, with the assumption I would work under the umbrella scheme, I found out a result of a take home pay reaching 82% of the turnover.

To my mind, such a result is questionable as I would expect a higher tax level, with a result much closer to 60-65% than the 80%.

I have then challenged this result with some calculators launchable upon some websites of umbrella companies (Parasol, danbro to be accurate). And the result looks much more realistic (61% of the turnover as the take home amount).

May any of you shed some light upon the tax calculation for a contractor under the umbrella scheme?

Advanced thanks for your help.

BtfBA

[Craig@Clarity]

What figures did you put in the income calculator to get 82%? Under umbrella calculations, you need to consider what expenses are incurred too so this will have an effect on your take home pay.

[malvolio]

What figures did you put in the income calculator to get 82%? Under umbrella calculations, you need to consider what expenses are incurred too so this will have an effect on your take home pay.

Actually that's a bit of a myth, isn't it? To claim expenses you should first have spent your own taxed income to pay for whatever it is you're claiming. So the net effect is zero: there's a bigger number in the box on the payslip, but if you have made an overall profit you're doing it wrong.

[SallyPlanIT]

Hi,

Before asking for your precious help in understanding the tax & calculations standards in the UK, I would like to thank the staff and the community for having a professional space where one can pick some relevant information.

I am a BA in invesment banking, willing to relocate in London. I have got an opportunity in mind, but I am currently in the process of computing what will be ultimately my take home pay after tax.

Using the calculator available in this website, with the assumption I would work under the umbrella scheme, I found out a result of a take home pay reaching 82% of the turnover.

To my mind, such a result is questionable as I would expect a higher tax level, with a result much closer to 60-65% than the 80%.

I have then challenged this result with some calculators launchable upon some websites of umbrella companies (Parasol, danbro to be accurate). And the result looks much more realistic (61% of the turnover as the take home amount).

May any of you shed some light upon the tax calculation for a contractor under the umbrella scheme?

Advanced thanks for your help.

BtfBA

I'm inclined to agree that Umbrella net pay would be more around the 60%. Limited company could achieve the 82% mark, possibly, depending on your IR35 status.

[BlasterBates]

I would say between 60 and 70 something with a Ltd outside IR35.

With the government clamping down on dodgy tax practices, I would be conservative.

If you have bonafide expenses then claim them, but don't accept any "virtual" expenses, make sure what expenses there are, are real, and keep all the receipts just in case.

Be wary of anything beyond about 75% take home.

[BtfBA]

What figures did you put in the income calculator to get 82%? Under umbrella calculations, you need to consider what expenses are incurred too so this will have an effect on your take home pay.

Thanks Craig@InTouch.

Hereafter is the extraction from the calculator:

Calculation based on:

Current rate: £450 Monthly Umbrella fee: £200
Average hours per week: 39 Average weeks per year: 46
Annual allowable expenses: £6000 Tax code of 647L

I have to say though that the input of allowable expenses is just a rough figure I had randomly set.

[BtfBA]

I'm inclined to agree that Umbrella net pay would be more around the 60%. Limited company could achieve the 82% mark, possibly, depending on your IR35 status.

I have not been informed of such a gap between umbrella and ltd entities, otherwise I would be considering to establish a limited company.
Correct me if I am wrong but if I fall outside the IR35 status under an umbrella account, I expect to fall as well outside the IR35 with a ltd.

[BtfBA]

I would say between 60 and 70 something with a Ltd outside IR35.

With the government clamping down on dodgy tax practices, I would be conservative.

If you have bonafide expenses then claim them, but don't accept any "virtual" expenses, make sure what expenses there are, are real, and keep all the receipts just in case.

Be wary of anything beyond about 75% take home.

I do agree with your range of take home pay. Although the CUK calculator is introducing some doubts.

[malvolio]

I have not been informed of such a gap between umbrella and ltd entities, otherwise I would be considering to establish a limited company.
Correct me if I am wrong but if I fall outside the IR35 status under an umbrella account, I expect to fall as well outside the IR35 with a ltd.

Since it's to do with working condition between end client and you, why should your payment vehicle have any bearing at all? 'Cos it doesn't.

If you do go limited, then you can rearrange your affairs to save a bit on tax and NICs, but it comes with legal responsibilities and rather more paperwork and record keeping than the average brolly so make sure you are happy to be your own boss.

[BtfBA]

OK fellow contractors, I have input a different value in the allowable expense (a more realistic £20,000.00 amount) and it gets a 69% take home pay.