Reply to: Umbrella calculations and why they differ!

[lucyclarityumbrella]

The easy way is with numbers. I got £22814.36 salary for the 4 months I worked and paid £2531.99 Employer NI. According to listentotaxman the Employer NI should have been £1935.64. So I just gave the taxman £595.35 for the privilege of taking a IR35 role)

Apologies it's taken me a while to come back to you, but I think I have figured out the difference for you, and it all comes back to the rate versus the taxable salary. Looking at your figures the £22,814.36 is the invoice value (apologies if I am wrong), if I split this by the 4 months, the invoice per month is £5,703.59, which gives a monthly Employers NI of £588.33 (over 4 months £2,353.32). So the taxable salary you should be entering into listentothetaxman should be as follows:

£5703.59 less Ers NI, less Levy, less umbrella margin = £5,295.28 per month

If you place this on listentothetaxman, the Employers NI is £629.69 giving you around £2,518.76 per 4 months in ERs. The difference is probably down to rounding of figures along the way, but hate to break the news but what has been accounted for is correct

HTHs

[Drei]

That's right - except for a few exceptions (such as company directors) NI allowances are periodic (week or month) rather than annual.

The easy way is with numbers. I got £22814.36 salary for the 4 months I worked and paid £2531.99 Employer NI. According to listentotaxman the Employer NI should have been £1935.64. So I just gave the taxman £595.35 for the privilege of taking a IR35 role)
Paid enough in TAX and personal NI, tax I should get back in April, not sure if I can claim-back the Personal NI.

I rather give £600 to someone that is struggling this year, Xmas presents for a struggling single mum or something. The government is just going to throw it away inside their black hole. Working for the public sector the last 2 years... made me extremely bitter when it comes to taxes. Seeing how much of our money they waste is unbelievable. I really don't want to give them a penny more than I have to.

[eek]

Hi Lucy, just a quick question regarding the Employers' NI as I never got my head around the way it is calculated.


I worked through PayStream for a few months before losing my contract due to Covid. When I put in my salary on the listentotaxman website it shows that the PayStream charged me £1900 extra for Employer NI. When I questioned PayStream they said that the Employer NI is a monthly allowance and NOT a yearly one, therefore if you earn £6000 a month and only work 3 months, you will pay the same Employer NI as if earning £72k. Also there is no way to claim this back or to offset it...

Does that sound correct?


Happy to send you my payslips from them, tell me if your figures are the same. I might as well terminate my contract with them in case I need to claim Universal Credits and work through you guys in the future.

That's right - except for a few exceptions (such as company directors) NI allowances are periodic (week or month) rather than annual.

[northernladuk]

No, Employers NI is calculated based on taxable salary not your gross contract rate, and to get to your taxable salary you need to know the Employers NI, so it is a bit of "payroll magic" to do the reverse calculation to come up with the end figures!

Could you explain what Employers NI is please and give an example?

[Drei]

Hi Lucy, just a quick question regarding the Employers' NI as I never got my head around the way it is calculated.


I worked through PayStream for a few months before losing my contract due to Covid. When I put in my salary on the listentotaxman website it shows that the PayStream charged me £1900 extra for Employer NI. When I questioned PayStream they said that the Employer NI is a monthly allowance and NOT a yearly one, therefore if you earn £6000 a month and only work 3 months, you will pay the same Employer NI as if earning £72k. Also there is no way to claim this back or to offset it...

Does that sound correct?


Happy to send you my payslips from them, tell me if your figures are the same. I might as well terminate my contract with them in case I need to claim Universal Credits and work through you guys in the future.

[lucyclarityumbrella]

I'm just curious how the Clarity calculator comes up with a figure of £1,108.64 from £10,000 gross monthly pay...

No, Employers NI is calculated based on taxable salary not your gross contract rate, and to get to your taxable salary you need to know the Employers NI, so it is a bit of "payroll magic" to do the reverse calculation to come up with the end figures!

[SDR]

Hi SDR,
Clarity does look at a 1250L M1 figure so one tax free allowance. However I cannot see that this can be taken into account on the Listentotaxman site, therefore will predict earnings for that site on £120k annualised earnings ie removing substantial tax free allowance in the figures.
The 1250L M1 looks at an isolated monthly figure rather than annualised.

Thanks Lucy. So earnings are annualised before calculating employers' NI? It's not as simple as 13.8% of £10,000 less £719 allowance and any other deductions (not sure if there any)? I'm just curious how the Clarity calculator comes up with a figure of £1,108.64 from £10,000 gross monthly pay...

[lucyclarityumbrella]

Is Employers' NI calculated differently for an umbrella over the usual method of 0% to ST and then 13.8% over and above? The calculator on the Clarity website for £10,000 of monthly income is £1,108.64 but on Listentotaxman is £1,280.73 using 1250L M1 tax code. Thanks!

Hi SDR,
Clarity does look at a 1250L M1 figure so one tax free allowance. However I cannot see that this can be taken into account on the Listentotaxman site, therefore will predict earnings for that site on £120k annualised earnings ie removing substantial tax free allowance in the figures.
The 1250L M1 looks at an isolated monthly figure rather than annualised.

[SDR]

Is Employers' NI calculated differently for an umbrella over the usual method of 0% to ST and then 13.8% over and above? The calculator on the Clarity website for £10,000 of monthly income is £1,108.64 but on Listentotaxman is £1,280.73 using 1250L M1 tax code. Thanks!

[lucyclarityumbrella]

I thought it may be worth resurecting this a little with the queries that are currently appearing on here!

Let's make one thing clear, HMRC set the taxes so there is very little difference any compliant umbrella company can make to affect the take home, however when you are looking at illustrations these are the things you need to consider:

1. The margin - this may make minimal difference
2. Tax Code - usually on a 1250L W1/M1 tax code
3. Expenses - some still assume expenses but be aware that as IR35 deems you an employee the likelihood of being able to claim these is slim (as confrimed by HMRC) as they will assume you are under Supervision, Direction & Control.
4. Period - look at the days / weeks that are being assumed in the calculation. If a company is quoting based on you working 52 weeks of the year, then your take home is going to be higher. Ask for a more realistic quote!
5. Pension - most won't quote with pension unless requested, however it is worth looking out to see if that has been included.
6. Holiday Pay - most will not show or show rolled up holiday (ie you have no holiday pay when on leave), if you do want to accrue this then ask for that to be shown on the illustration.

This probably covers most things, but if there is a large take home difference then be very careful. For a 40% tax payer, the average take home from an umbrella (with no pension) is between 52-56%.

Hope this is of use

[northernladuk]

Your stuffed then NorthernLad looking at the amount of posts! How was life with the revenue???

Making a mint out of these suckers asking for advice and hunting them down when they clearly don't have a clue thank you!!!

[lucyclarityumbrella]

Because post count proves that!

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Your stuffed then NorthernLad looking at the amount of posts! How was life with the revenue???

[lucyclarityumbrella]

Just look at the amount of posts per profile it says it all

Really

[northernladuk]

No genuine advice here as it's full of HMRC employees pretending to be contractors

Just look at the amount of posts per profile it says it all

Because post count proves that!

6

[the heron]

No genuine advice here as it's full of HMRC employees pretending to be contractors

Just look at the amount of posts per profile it says it all