Originally posted by workinghard11
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1. your employer bills the client 3000 net, and on top of that your employer collects VAT at 17.5% from the client and passes it on to the government. So the client pays your employer 3525, your employer hands over the VAT to the government (which is really none of your business, and doesn't affect your calculations).
2. Now your employer is going to pay you a salary. The salary will be quoted as "gross salary", which will then have employee's NI and PAYE deducted from it before you get it. How much "gross salary" will your employer pay? Not 3000, because we haven't calculated employer's NI yet.
Employer's NI is 12.8% of the "gross salary", it is paid on top of the gross salary.
So that 3000 is equal to "gross salary" plus employer's NI. That is, 3000 is 112.8% of gross salary. Therefore gross salary is 2659.74 (and employer's NI is 340.26).
From that 2659.74, employee's NI and PAYE are deducted, and you get the rest.
(calculations simplified, taking no account of NI earnings thresholds, reclaimable expenses etc etc)
Edit: as ASB said
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