Profit Share element of payslip

[Rhiga]

I apologise for what probably sounds a naiive question. I am new to contracting and have this week received my first payslip from my umbrella company. The make up of the payslip is a value for wage (based on minimum wage), a value for NI Contributions, a value for expenses and a value for Profit Share.

The value for Profit Share is vastly greater than the other values.

My question is: What tax is payable on that profit share and how do I pay it?

I'm a little confused because I was genuinely surprised at the amount of money paid and am keen to manage my finances correctly from the outset to prevent any nasties later.

Many thanks.

[LisaContractorUmbrella]

I apologise for what probably sounds a naiive question. I am new to contracting and have this week received my first payslip from my umbrella company. The make up of the payslip is a value for wage (based on minimum wage), a value for NI Contributions, a value for expenses and a value for Profit Share.

The value for Profit Share is vastly greater than the other values.

My question is: What tax is payable on that profit share and how do I pay it?

I'm a little confused because I was genuinely surprised at the amount of money paid and am keen to manage my finances correctly from the outset to prevent any nasties later.

Many thanks.

You will need to double check the terminology with your umbrella company but most contracts are a combination of minimum wage (or living wage) and a profit related bonus. The minimum wage (or living wage) element is your guaranteed salary and your umbrella company is obliged to pay it to you on a monthly basis regardless of whether or not they have received funds for the invoice that they raised to the recruitment agency/client. The bonus is dependent on the umbrella company receiving those funds as it is from these that they take their margin thereby enabling them to make a profit. They will also make payment to HMRC for the Employer's National Insurance contribution that they are legally obliged to make. Both the minimum wage (or living wage) and the profit related bonus elements of your earnings are subject to PAYE and therefore and tax and NIC's payable should have been taken at source and should be shown clearly on your payslip. If your tax paid looks particularly low then it's possible that some sort of tax avoidance scheme is in place.

[ASB]

It is also possible that it is low and valid. Eg very low income in the tax year to date and with a non w1 tax code. Unusual. But possible.

[LisaContractorUmbrella]

It is also possible that it is low and valid. Eg very low income in the tax year to date and with a non w1 tax code. Unusual. But possible.

Yes, of course, there could be a perfectly legitimate explanation - it was just the expression 'profit share' which made me urge caution

[Rhiga]

Yes, of course, there could be a perfectly legitimate explanation - it was just the expression 'profit share' which made me urge caution

ASB and Lisa. Many thanks for your contributions. It has put my mind at rest. Having recently returned from abroad I expect the high net pay is a result of a low income for the past couple of years. I'll expect normality to return come April!

[LisaContractorUmbrella]

ASB and Lisa. Many thanks for your contributions. It has put my mind at rest. Having recently returned from abroad I expect the high net pay is a result of a low income for the past couple of years. I'll expect normality to return come April!

You're probably right You will get a P60 at the year end from your umbrella company so that will confirm your earnings and tax paid