Reply to: How do umbrellas calculate employers NI?

[eek]

permorcontract It would be best to post these questions in a new thread, since it's not really the same topic.

However, the short answer is that the PAYE will just be guesswork. In a permanent job, they assume that you'll be there for the entire year, so they know what your gross salary will be, and then they split it evenly. In a contract role, they don't know your total income for the year (because you could be on the bench for the next 6 months). So, the total amount of tax that you pay might be too low or too high, but you can sort it out at the end of the financial year (Apr 2023), i.e. pay the excess to HMRC if it's too low or get a rebate if it's too high. In my experience, umbrella companies tend to start out with the income tax being a bit lower, then they gradually increase it as the contract continues.

More specifically, I'm guessing that your payslip from the umbrella looked like this:

Company:

Income	£10,450.00
Apprenticeship levy	£44.91
Employer's NI	£1,237.75
Company margin	£75.00
Pension (employer)	£110.07
	£8,982.27

Personal:

Gross salary	£8,982.27
Pension earnings	£3,669.00
Employee NI	£601.78
Pension (employee)	£183.45
PAYE	£1,149.14
Net salary	£7,047.90

I.e. your gross salary should equal what's left after the umbrella make their deductions. For pension, I assume that it's 3% for the employer (although you didn't mention that) and 5% for you.

You also said that you had £7208.64 gross income in April (from a permanent job?), so that's a total of £16,190.91.

The standard allowance for this financial year (2022/2023) is £12,570. So, you've only received £3620.91 of taxable income so far; that's in the 20% basic rate band, so the tax owing so far is £724.18. You've paid £3,143.80 (£1,994.66 + £1,149.14) so you're ahead of the game!

Did you give the umbrella company a P45 when you started the contract? As a related question, does your payslip include cumulative figures for the current financial year which match my numbers above, or are they treating this as your only employment so far?

Pension - given it's a single figure is more likely to be single lump sum figure treated as a salary sacrifice - it reduces the amount of employer NI paid and is Nest's preferred approach.

When I treat the pension as salary sacrifice the NI figures look right.

And as you say the income tax will fix itself over the year but it's was low in June / July because it's playing catch up from the month(s) where no income was received. The only way income tax deductions will be consistent for an umbrella work is if you are working with that umbrella when the tax year begins.

[permorcontract]

Thanks so much hobnob

Apolgies I’ll start a new thread going forward.

This has been very helpful.

The only correction is that no pension contributions was paid.

And no the umbrella have no included the one perm wage in April I received however I can get them to amend this.

[hobnob]

permorcontract It would be best to post these questions in a new thread, since it's not really the same topic.

However, the short answer is that the PAYE will just be guesswork. In a permanent job, they assume that you'll be there for the entire year, so they know what your gross salary will be, and then they split it evenly. In a contract role, they don't know your total income for the year (because you could be on the bench for the next 6 months). So, the total amount of tax that you pay might be too low or too high, but you can sort it out at the end of the financial year (Apr 2023), i.e. pay the excess to HMRC if it's too low or get a rebate if it's too high. In my experience, umbrella companies tend to start out with the income tax being a bit lower, then they gradually increase it as the contract continues.

More specifically, I'm guessing that your payslip from the umbrella looked like this:

Company:

Income	£10,450.00
Apprenticeship levy	£44.91
Employer's NI	£1,237.75
Company margin	£75.00
Pension (employer)	£110.07
	£8,982.27

Personal:

Gross salary	£8,982.27
Pension earnings	£3,669.00
Employee NI	£601.78
Pension (employee)	£183.45
PAYE	£1,149.14
Net salary	£7,047.90

I.e. your gross salary should equal what's left after the umbrella make their deductions. For pension, I assume that it's 3% for the employer (although you didn't mention that) and 5% for you.

You also said that you had £7208.64 gross income in April (from a permanent job?), so that's a total of £16,190.91.

The standard allowance for this financial year (2022/2023) is £12,570. So, you've only received £3620.91 of taxable income so far; that's in the 20% basic rate band, so the tax owing so far is £724.18. You've paid £3,143.80 (£1,994.66 + £1,149.14) so you're ahead of the game!

Did you give the umbrella company a P45 when you started the contract? As a related question, does your payslip include cumulative figures for the current financial year which match my numbers above, or are they treating this as your only employment so far?

[permorcontract]

I’ve been on this forum for 9 years… and actually rated you and heard from Lucy at Clarity you were a decent guy…! I’ve got 3 kids and new baby certainly don’t need some bellend picking me up on a typo

[northernladuk]

Hi
I too am looking for some advise please….

any advise on this would be hugely appreciated!!!

ADVICE. It's advice you are after. Not advise.

[permorcontract]

7,208.64 april top line

1,994.66 tax

541.73 national insurance

[eek]

How much PAYE have you paid so far this year prior to this payment?

[permorcontract]

Hi
I too am looking for some advise please….
I have had my first payslip from an Umbrella company and I can’t make sense of the breakdowns and I have emailed them with a list of queries and have yet to have a response.
I was made aware roughly 52-54% seemed accurate for take home anything else alarm bells… well my take home was 67%!
I have only had one pay and want to make sure things are legit as have been stung previously with the loan charge.
This is my first time using an umbrella so please excuse my ignorance.
£550 day rate and took home £7047
Breakdown as follows for 19 days -
apprenticeship levy £44.91
employers Ni £1237.75
fee £75
National insurance £601.78
employees pension £183.45
paye £1149.14
take home £7047……
also my tax code on the pay slip is different to the tax code on my government gateway login…..

any advise on this would be hugely appreciated!!!

[ensignia]

Ni should be the same but income tax will differ due to how the calculations works - ni is fixed weekly / monthly, income tax is annual and based on what has already been paid and the No of weeks left in tax year.

Cheers. I really hate the PAYE model for contractors, and not just because of the deductions.

[eek]

You have way too much time on your hands to sit and do this , oh no wait eek gets too much pleasure out of this kind of calculation

I wrote a pile of code - now all I do is put some figures in (invoice amount, tax code, amount paid so far and period) and it spits out a figure

[lucyclarityumbrella]

You have way too much time on your hands to sit and do this , oh no wait eek gets too much pleasure out of this kind of calculation

[eek]

It's very rare that I ever get consistently the same amount net. It's sometimes up a few quid, down a few quid and I haven't really looked into why.

And yes, for any smart arses who might want to comment, it's for the same amount of working days...

Ni should be the same but income tax will differ due to how the calculations works - ni is fixed weekly / monthly, income tax is annual and based on what has already been paid and the No of weeks left in tax year.

[ensignia]

It's very rare that I ever get consistently the same amount net. It's sometimes up a few quid, down a few quid and I haven't really looked into why.

And yes, for any smart arses who might want to comment, it's for the same amount of working days...

[DocJ]

Yes, I forgot that I had deducted gross expenses (umbrella margin and pension contributions by salary sacrifice to SIPP or workplace pension) - sorry, but well spotted!

g = gross expenses, so

s = (e - g + xr) / (1 + r + L)

[hobnob]

that would be because the weekly starting point for employer ni was £166 in 2019/20 rather than £170

Yup, that would do it Well spotted!

s = (£1382.50 + (£166 x 0.138)) / (1 + 0.005 + 0.138) = £1229.58

So, that's exactly the same as the umbrella's figures.