Reply to: Quick question - NI Calcs

[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.

[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 ?

[BlightyBoy]

They do pay the employers contributions.

They just dock it off your salary first.

[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]

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

[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.

[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]

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).

[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

[LA1]

Paymatters is correct - The expenses and employers NI are not part of your taxable income. In the same way that the employers NI is not part of the salary of a perm employee.

If the website quoted implies that the gross payment should be used, it's wrong. This would be like paying tax/NI on the VAT.

Its simply not part of your salary. Ask any accountant or Umbrella company

[PayMatters]

The expenses are reimbursed as a repayment of expenses you have incurred and not as .salary

[Sausage Surprise]

No it's wrong!

From the 2k you have to deduct employers National Insurance to get the gross pay per your payslip.

This is quite tricky as it's based on your final gross pay and not the 2k! (i.e. 12.8/112.8 but also you need to take into account £476 exempt limit)

Therefore employers NIC will be approx = (12.8/112.8*(2000-476))=173

Therefore Gross Pay will be 2000-173.

Taxable Pay will be after deducting your personal allowance entitlement.

Should this be 3000?

Found a site here that would use the 2000 figure - does it look right?


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[PayMatters]

No it's wrong!

From the 2k you have to deduct employers National Insurance to get the gross pay per your payslip.

This is quite tricky as it's based on your final gross pay and not the 2k! (i.e. 12.8/112.8 but also you need to take into account £476 exempt limit)

Therefore employers NIC will be approx = (12.8/112.8*(2000-476))=173

Therefore Gross Pay will be 2000-173.

Taxable Pay will be after deducting your personal allowance entitlement.

[TykeMerc]

That would be for PAYE though?

What I need to know is if I'm reading from the monthly HMRC Tables (J) would I use £2000 or £3000 figure?

You started your post with "Working under an Umbrella", that's PAYE by default unless it's some tax avoidance scheme.

[BlightyBoy]

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....

Thinking back to when I used to do my own payroll... the NI calculations should be on the £3000, not the £2000, and then both employers (uncapped) and employees (capped) contributions.

HTH