Why am I paying Employers NI?

[lucyclarityumbrella]

OK so I get asked this question over and over and it appears that some companies still cease to explain things properly to contractors leaving them disgruntled when they see their first payslip, so let me explain the situation in simple terms for any newbies...

So what you need to be aware of is that:

THE DAY RATE YOU ARE GIVEN IS YOUR CONTRACT RATE, NOT YOUR SALARY UNTIL EMPLOYERS NI, APPRENTICESHIP LEVY AND THE UMBRELLA MARGIN ARE DEDUCTED FROM THE CONTRACT RATE IE THE MONIES THEY RECEIVE FOR THE WORK UNDERTAKEN.

All umbrella companies, as employers, have a legal obligation to pay employer's national insurance contributions and the Apprenticeship Levy (AL) to HMRC. These contributions are made from the funds received from the recruitment agency/client with whom the umbrella company will have a business to business contract; the employment costs must be paid from these funds before the salary is available to the contractor, they will also deduct their margin from the contract value.

You will work with the umbrella company under an over-arching contract of employment and your salary will be subject to income tax and employee's national insurance contributions. Your salary is calculated as the contract value, less the umbrella company's margin, less the amount payable to HMRC for employer's NI and the AL.

HTH

[iko5000]

Hi Lucy

Hi Lucy,
let say for example I'm getting like 129 per day or like 646 pounds per week. With all the NI stuff and tax you are quoting , what should be my average pay per week
if I claim no expenses and I pay 15 pounds for accounting and 3 pounds pension

Ikenna

[eek]

Hi Lucy,
let say for example I'm getting like 129 per day or like 646 pounds per week. With all the NI stuff and tax you are quoting , what should be my average pay per week
if I claim no expenses and I pay 15 pounds for accounting and 3 pounds pension

Ikenna

A quick google search brings up this calculator http://www.contractorumbrella.com/calculator.html which has a link to a calculator.

Employer National Insurance 56.95
Employment Tax 2.85 (apprenticeship levy in reality)..
Employee National Insurance 49.52
Employee Tax 69.67
Total All Tax 179.00
Total Net Income 450.50

That won't be the exact figure but won't be far off.

[lucyclarityumbrella]

Thanks Eek - do you want as job

"if I claim no expenses and I pay 15 pounds for accounting and 3 pounds pension"

Expenses are not allowable at source via an umbrella company anymore, our margin is slightly different to the accounting figure you mention and the pension would have to be set at the minimum contribution per week, which currently stands at a total of just over £10 per week (EEs contribution and ERs contribution). Please be aware that as of April next year the contribution percentages for pensions are due to increase, so the minimum contribution will increase to nearly £20 per week.

HTH

[iko5000]

Thanks EEK

A quick google search brings up this calculator Umbrella Company PAYE Calculator | Contractor Umbrella which has a link to a calculator.

Employer National Insurance 56.95
Employment Tax 2.85 (apprenticeship levy in reality)..
Employee National Insurance 49.52
Employee Tax 69.67
Total All Tax 179.00
Total Net Income 450.50

That won't be the exact figure but won't be far off.

Thanks Eek what I used to get was Total Net Income 446 but now I get Total Net Income 439 due to some employment cost increase.

What I really want to know if anyone can help is better to go limited but I use a third part software endorse by the HMRC to do my tax thereby saving cost

two if I earn a company and earn like 1k a week and pay or that in salary minus all the taxes and NI stuff leaving the company account 0 every week is that ok
or I have leave some money in the account ?

[iko5000]

Thanks Lucy

Thanks Eek - do you want as job

"if I claim no expenses and I pay 15 pounds for accounting and 3 pounds pension"

Expenses are not allowable at source via an umbrella company anymore, our margin is slightly different to the accounting figure you mention and the pension would have to be set at the minimum contribution per week, which currently stands at a total of just over £10 per week (EEs contribution and ERs contribution). Please be aware that as of April next year the contribution percentages for pensions are due to increase, so the minimum contribution will increase to nearly £20 per week.

HTH

Thanks I think the pension I pay both EE and ER is like 12 pounds . I'm just wondering if we get value for money with umbrella companies

[ladymuck]

Thanks I think the pension I pay both EE and ER is like 12 pounds . I'm just wondering if we get value for money with umbrella companies

You get value for money from the service (if they are a good brolly, there are some cowboys) but you don't get tax efficiency. Make sure you don't conflate the two.

[lucyclarityumbrella]

.....but you don't get tax efficiency.

Unless you want to make substantial payments into the pension

[ashton88]

Still confused about NI

Sorry to resurrect this thread....
1 year and however many months on using an umbrella after the changes in April 2017 and I still don't understand why i'm paying employers NI and Apprentice tax levy out of my own income. In essence I feel as though i'm being double taxed and im confused as to why im working full time and then being charged to receive my pay packet.

Now I understand employers NI needs to be deducted somewhere, however, as I've been in the same assignment since before the changes in April 2017 (I was running everything via LTD) I have not been issued a new contract or terms from my agency, I feel they should have made adjustments to my rate of pay to allow for these additional employment costs.

Some initial reading I have done stipulates '“The umbrella margin and employer’s NI are overheads that need to be factored into the overall assignment rate - in addition to the advertised pay rate,” comments Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA).“FCSA’s position on this has always been very clear; people should not be charged for receiving their wages, nor should they be paying employer’s NI.”

'Section 7 of HMRC guidance published online in March 2017 states the following concerning NI payments: ‘They [the fee payer] cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee [with the intermediary].’ (i.e the agencies cut).

My rate of pay was already agreed prior to using an umbrella, the agency are getting a regular payment from the end client for doing sweet F A basically yet employment costs are being deducted from my pay. I want to challenge my agency as I feel they should be adding on the employment costs to the payment the Umbrella receives, unsure if this should be the case or not?

Any feedback, info would be most helpful.

Thanks

[lucyclarityumbrella]

Sorry to resurrect this thread....
1 year and however many months on using an umbrella after the changes in April 2017 and I still don't understand why i'm paying employers NI and Apprentice tax levy out of my own income. In essence I feel as though i'm being double taxed and im confused as to why im working full time and then being charged to receive my pay packet.

Now I understand employers NI needs to be deducted somewhere, however, as I've been in the same assignment since before the changes in April 2017 (I was running everything via LTD) I have not been issued a new contract or terms from my agency, I feel they should have made adjustments to my rate of pay to allow for these additional employment costs.

Some initial reading I have done stipulates '“The umbrella margin and employer’s NI are overheads that need to be factored into the overall assignment rate - in addition to the advertised pay rate,” comments Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA).“FCSA’s position on this has always been very clear; people should not be charged for receiving their wages, nor should they be paying employer’s NI.”

'Section 7 of HMRC guidance published online in March 2017 states the following concerning NI payments: ‘They [the fee payer] cannot lawfully deduct the secondary NICs from a fee that has been agreed, but could, depending on the contractual terms, negotiate a lower fee [with the intermediary].’ (i.e the agencies cut).

My rate of pay was already agreed prior to using an umbrella, the agency are getting a regular payment from the end client for doing sweet F A basically yet employment costs are being deducted from my pay. I want to challenge my agency as I feel they should be adding on the employment costs to the payment the Umbrella receives, unsure if this should be the case or not?

Any feedback, info would be most helpful.

Thanks

Hi ashton88

The first thing I need to understand is why you moved from Ltd to umbrella - was this your choice or the agency moving you for some reason?

The second thing that has to be explained is that your contract rate is deemed to cover the "employment costs" before your taxable salary is available to you. Your income is your salary and not the contract rate agreed. If there was a move then we saw a number of our contractors negotiate better rates to account for this, but it was a negotiation they pursued if the rate was not upped. Your best bet unfortunately is to go back to the agency and try and renegotiate - but it may well be too late for this