Newbie to contracting- first pay, and seemed to have had alot taken

[psychocandy]

Oh dear. Looks like OP has been told a few porkies by the umbrella....

Never done umbrella but surely you're losing tons by having to pay NI (employers and employee) and tax PLUS umbrella cut (as opposed to ltd)?

It seems a lot of people on the lower rates seem to go for this but it seems that a low daily rate becomes an even lower in pocket rate if you go umbrella? Even if you're inside IR35 you're worse off.

I know there are reasons why some prefer umbrella but surely ltd is the way to go long term at least?

For instance, I pay zero NI - either employer or employee just tax, splitting income with partner so no 40% tax, so probably bringing in just over 80% of gross.....

[Wanderer]

Calculator's actually a bit misleading Wanderer - they have included annual fees from an umbrella as £1800 (£150 per month) and £1368 from an accountant (£114.00) per month. We charge £95.00 which is considerably less than the figure being used in the take home pay calculation

Fair point! 150/month is too high for a brolly.

[LisaContractorUmbrella]

Oh dear. Looks like OP has been told a few porkies by the umbrella....

Never done umbrella but surely you're losing tons by having to pay NI (employers and employee) and tax PLUS umbrella cut (as opposed to ltd)?

It seems a lot of people on the lower rates seem to go for this but it seems that a low daily rate becomes an even lower in pocket rate if you go umbrella? Even if you're inside IR35 you're worse off.

I know there are reasons why some prefer umbrella but surely ltd is the way to go long term at least?

For instance, I pay zero NI - either employer or employee just tax, splitting income with partner so no 40% tax, so probably bringing in just over 80% of gross.....

But that only applies outside IR35 - inside IR35 and you'll pay income tax, employees and employers NICs and accountancy fees

[psychocandy]

But that only applies outside IR35 - inside IR35 and you'll pay income tax, employees and employers NICs and accountancy fees

True enough. I guess inside IR35 is much the same then.

[northernladuk]

For instance, I pay zero NI - either employer or employee just tax, splitting income with partner so no 40% tax, so probably bringing in just over 80% of gross.....

And also that isn't a like for like example. You are using some questionable routes i.e. the splitting, and paying under NI and you are using two people, umbrella will be one and so the comparison is invalid.

[Maslins]

don't forget - you may get tax relief on the Pret sandwich but you still have to buy it in the first place. Making a lunch at home will probably cost less than a pound - buying it in Pret or Marks or similar will cost £5-£8 on which you will then get tax relief but you still out of pocket by £3-£5 more than if you had brought in lunch from home.

It amazes me how many people struggle to understand the above. Spending extra for the sake of getting tax relief is ridiculous, but done by many in the naive belief it makes them better off.

...but back on topic - yes HMRC sting working people in a variety of ways. The headline basic rate of 20% income tax doesn't sound too bad...until you consider NICs realistically make basic rate for employees >40%...and that's before you hit higher rate, or lose your personal allowance, or hit additional rate.

[Wanderer]

It amazes me how many people struggle to understand the above. Spending extra for the sake of getting tax relief is ridiculous, but done by many in the naive belief it makes them better off.

This is because an employee working for a client and claiming expenses from the client gets the full amount reimbursed.

By contrast, a contractor working for an umbrella gets given a big list of "expenses" that they can claim, but what catches the noobie contractors out is that these are deducted from their own contract income and paid to them gross rather than being reimbursed by the umbrella as they might intuitively expect.

[LisaContractorUmbrella]

This is because an employee working for a client and claiming expenses from the client gets the full amount reimbursed.

By contrast, a contractor working for an umbrella gets given a big list of "expenses" that they can claim, but what catches the noobie contractors out is that these are deducted from their own contract income and paid to them gross rather than being reimbursed by the umbrella as they might intuitively expect.

NNNNNOOOOOOOOOOOOOOOoooooooooooooooooooooooooooooo ooooooooooooooooo Umbrella companies (well this one at least) do not give contractors big lists of expenses that they can claim. We send each newbie a guide which explains exactly how it will all work and make it clear that everything needs to be supported by receipts and that they will get the tax benefit and not a total reimbursement