In recent months we have seen more and more enquiries from contractors looking to work via an umbrella company, and querying why we cannot offer them a higher take home 
– so I thought I would put this small guide together to help you understand what might be going on…
So first of all let’s look at this in a very straightforward and simplistic manner; as an employee (which you should be if operating via a compliant brolly)… the first question I ask, is are you a 40% tax payer? If the answer to that is yes, then your take home cannot be more than 60% via a brolly. In realistic terms and due to the deductions, you are more likely to be looking at a figure of around 52-56% take home!
So why are there differences?
Well this could be down to a few things; most calculators will assume a standard tax code (probably 1100L for 2016) which will be applied to the calculation, obviously if your tax code does differ then this could have an impact on the final amount received.
Then if you are looking at a monthly figure, make sure you are looking at a like-for-like calculation, some will work on 4 weeks, some will work on a calendar month, again, this will skew the figures.
Some online calculators, ours included, will make the assumption that you are going to be working for the 12 months, earning that gross figure every month, but we all know that as a contractor this may not be the case, and as such any tax free allowance will be accrued for those periods when you are not in work, meaning your figure could increase after a break in assignments. Essentially this illustration is a worst-case scenario, based on the assumption that you will have ongoing earnings at the same rate for the full 12 months.
I will also remind you that back in April 2016, umbrella companies had the ability to process expenses for tax relief purposes at source removed. This means that unless you can prove to HMRC that you are not under Supervision, Direction and/or Control or the right thereof, then you will be unable to claim this back via self-assessment at the end of the financial year. There are still numerous calculators online using assumptions of £X amount in expenses, they including this in your final take home figure – in reality, you may never see this, and it is potentially inflating your figure without any real justification.
If we move away from the online calculation and look at a “mock payslip” scenario, this may differ from the online calculator based on the information you provide to them. A payslip, will normally show a snapshot at that point in time, and will assume that you will only earn that amount for that individual period; what it cannot do is take into consideration any previous earnings or Year to Date figures, unless you are able to provide these. So once again the reality of your paypacket may once again be affected by these figures and differ from a calculation provided. We will always provide a mock payslip with a Month 1 / Week 1 tax code (shown as 1100L W1/M1), this makes the assumption that you have paid all of your taxes to date correctly within that tax year, if the payslip shows a standard cumulative tax code, then it would accrue your tax free allowance up until that point, consider this unused and once again will give you a distorted figure.
So going back to what I said at the start – the only difference, if you were doing an absolute like for like comparison, is the margin the umbrella company are charging – oh and the service you receive (which should mean them being able to explain all of this!
)
I hope this helps
– so I thought I would put this small guide together to help you understand what might be going on…So first of all let’s look at this in a very straightforward and simplistic manner; as an employee (which you should be if operating via a compliant brolly)… the first question I ask, is are you a 40% tax payer? If the answer to that is yes, then your take home cannot be more than 60% via a brolly. In realistic terms and due to the deductions, you are more likely to be looking at a figure of around 52-56% take home!
So why are there differences?
Well this could be down to a few things; most calculators will assume a standard tax code (probably 1100L for 2016) which will be applied to the calculation, obviously if your tax code does differ then this could have an impact on the final amount received.
Then if you are looking at a monthly figure, make sure you are looking at a like-for-like calculation, some will work on 4 weeks, some will work on a calendar month, again, this will skew the figures.
Some online calculators, ours included, will make the assumption that you are going to be working for the 12 months, earning that gross figure every month, but we all know that as a contractor this may not be the case, and as such any tax free allowance will be accrued for those periods when you are not in work, meaning your figure could increase after a break in assignments. Essentially this illustration is a worst-case scenario, based on the assumption that you will have ongoing earnings at the same rate for the full 12 months.
I will also remind you that back in April 2016, umbrella companies had the ability to process expenses for tax relief purposes at source removed. This means that unless you can prove to HMRC that you are not under Supervision, Direction and/or Control or the right thereof, then you will be unable to claim this back via self-assessment at the end of the financial year. There are still numerous calculators online using assumptions of £X amount in expenses, they including this in your final take home figure – in reality, you may never see this, and it is potentially inflating your figure without any real justification.
If we move away from the online calculation and look at a “mock payslip” scenario, this may differ from the online calculator based on the information you provide to them. A payslip, will normally show a snapshot at that point in time, and will assume that you will only earn that amount for that individual period; what it cannot do is take into consideration any previous earnings or Year to Date figures, unless you are able to provide these. So once again the reality of your paypacket may once again be affected by these figures and differ from a calculation provided. We will always provide a mock payslip with a Month 1 / Week 1 tax code (shown as 1100L W1/M1), this makes the assumption that you have paid all of your taxes to date correctly within that tax year, if the payslip shows a standard cumulative tax code, then it would accrue your tax free allowance up until that point, consider this unused and once again will give you a distorted figure.
So going back to what I said at the start – the only difference, if you were doing an absolute like for like comparison, is the margin the umbrella company are charging – oh and the service you receive (which should mean them being able to explain all of this!
)I hope this helps
appreciate anything that may help stop me having to repeat the same thing over and over!
but the exact way they work is pretty much anyone's guess - as they all seem to do something slightly different which apparently makes them compliant! 
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