My first payslip with IR35 and I don't get it!

[GhostofTarbera]

Hi,

I used to be a LTD contractor and just moved to IR35. I got my first payslip but I don't understand it. Can someone explains to me those numbers?

The weekly pay is £3825 based on a 5-day week at £765.

The total paid by the client to the umbrella company is £3825.

Then the umbrella company takes £18 off per week as margin.

But then they say Employer NIC is £437.55 and apprentiship levy is £16.70.
There is also employer pension contribution for £13.08.

And so I am left with a gross pay of: £3339.

Now when I ask the umbrella company how they arrive to that £3339 they tell me they just removed all the figures above from the £3825. But then when I asked them how they calculated employer NIC and the apprenticeship levy, they say they applied the percentages (13.8% for NIC and 0.5% for the apprenticeship levy) on the £3339 .... It doesn't make sense to me that they calculate NIC and levy based on a number that they say they generated using those 2 figures... Which ones come first, it cannot be both.

Anyone understands those numbers??

Thanks.
Jerome

Remember to get umbrella to update your tax code - otherwise nasty shock in a few months


Sent from my iPhone using Contractor UK Forum

[lucyclarityumbrella]

Hi,

I used to be a LTD contractor and just moved to IR35. I got my first payslip but I don't understand it. Can someone explains to me those numbers?

The weekly pay is £3825 based on a 5-day week at £765.

The total paid by the client to the umbrella company is £3825.

Then the umbrella company takes £18 off per week as margin.

But then they say Employer NIC is £437.55 and apprentiship levy is £16.70.
There is also employer pension contribution for £13.08.

And so I am left with a gross pay of: £3339.

Now when I ask the umbrella company how they arrive to that £3339 they tell me they just removed all the figures above from the £3825. But then when I asked them how they calculated employer NIC and the apprenticeship levy, they say they applied the percentages (13.8% for NIC and 0.5% for the apprenticeship levy) on the £3339 .... It doesn't make sense to me that they calculate NIC and levy based on a number that they say they generated using those 2 figures... Which ones come first, it cannot be both.

Hi Jerome

OK take your invoice value as £3,825 deduct £437.55 (Ers NI) and £16.70 (AL) and margin £18, less pension £13.01, leaving a taxable salary of £3,339.74. For the Ers, it is 13.8% of that but the threshold for NI has to be taken into account before that is calculated, so it is not a simple 13.8% of the taxable salary.

And yes it is a reverse calculation that we run to be able to calculate the taxable salary in order to calculate the Employers NI and levy - call it umbrella magic

[PTP]

Y = X + (0.138*(X-169)) + (0.005*X) + (0.0039*X) + 18

Then work that back to:
x = (y + 5.322)/1.1469

Where Y is the amount paid to them. X becomes the amount paid to you.

Employer NIC = 13.8% of employee weekly pay for anything over £169 per week
Everything else is obvious

I've got doubts about Giant's calculation of my first payslip too.
The maths WTFH mentioned matches most of how I understood it......I don't know what the 0.0039 is?

0.138 = Employers NI Rate
169 = Weekly Employers NI Allowance
0.005 = Apprentice Levy Rate
18 = Umbrella margin
0.0039 = What ??????????


In my first month, Assignment Income = £6,650
Out of which Giant deducted "(Employers costs including NIC 13.8%, app levy 0.5% + £88 margin) = £1,467.23"
Leaving me with Gross Pay of £5,182.77

That's 22%


By my maths, in line with WTFH & Monthly Employers NI Allowance = £732

£6,650 = X + (0.138*(X-732)) + (0.005*X) + £88
X = £5,829.41


So why are Giant only giving gross pay of £5,182.77 ?

Yes I'm querying with them, but they are taking their time in replying


[FYI, they then take £1,031 income tax and £425.31 EE NIC, leaving £3,726.39...........I'm not questioning these]

[lucyclarityumbrella]

In my first month, Assignment Income = £6,650

By my maths, in line with WTFH & Monthly Employers NI Allowance = £732

£6,650 = X + (0.138*(X-732)) + (0.005*X) + £88
X = £5,829.41

So why are Giant only giving gross pay of £5,182.77 ?

[FYI, they then take £1,031 income tax and £425.31 EE NIC, leaving £3,726.39...........I'm not questioning these]

By our records, using our margin, then £6,650.00 should leave you with a taxable salary of £5,823.28, so yes your figures look correct, although I would expect the take home to be higher at around £4,097.81 (this could however be down to previous earnings or tax code) - is any pension in there at all that you are missing which would reduce your taxable salary?

[PTP]

By our records, using our margin, then £6,650.00 should leave you with a taxable salary of £5,823.28, so yes your figures look correct, although I would expect the take home to be higher at around £4,097.81 (this could however be down to previous earnings or tax code) - is any pension in there at all that you are missing which would reduce your taxable salary?

Thanks Lucy for confirming

No I'm not in a pension yet. They will soon auto-enroll me but I'll opt back out.

I too expected less income tax with how I've not earned anything in 2020/2021 until now. The P45 I had was over 3 months old so they said it was no use. So I've ended up on emergency tax code 1250L M1. I'm not too worried about this because I should get it back at the next self-assessment.

[lucyclarityumbrella]

I too expected less income tax with how I've not earned anything in 2020/2021 until now. The P45 I had was over 3 months old so they said it was no use. So I've ended up on emergency tax code 1250L M1. I'm not too worried about this because I should get it back at the next self-assessment.

Not a problem

On that standard tax code, I would expect it to be as I said. Seems odd with the P45 unless it was from the previous tax year in which case, they should simply apply the original tax code. The 1250L M1 would normally be applied from a starter checklist Statement B, which suggests you have had other PAYE income for the year since April. If you have had no PAYE earnings then, as you say, there should a lower tax take on that first payslip.

Good luck with getting it sorted.

[WTFH]

I've got doubts about Giant's calculation of my first payslip too.
The maths WTFH mentioned matches most of how I understood it......I don't know what the 0.0039 is?

0.138 = Employers NI Rate
169 = Weekly Employers NI Allowance
0.005 = Apprentice Levy Rate
18 = Umbrella margin
0.0039 = What ??????????

3.9% was the pension contribution, I think - it's a couple of months since I did that "back of a fag packet" calculation

[PTP]

SOLVED: I've had Giant's response now

The mystery deduction was them keeping money aside for holiday pay - Would've helped if they listed this as one of the deductions on the payslip.

I'm fairly sure that I had told them I wanted to receive it immediately with each pay cheque but they kept it aside. And they said I'd have lost it if not claimed pre-January

[eek]

SOLVED: I've had Giant's response now

The mystery deduction was them keeping money aside for holiday pay - Would've helped if they listed this as one of the deductions on the payslip.

I'm fairly sure that I had told them I wanted to receive it immediately with each pay cheque but they kept it aside. And they said I'd have lost it if not claimed pre-January

Really? Keeping it is rather dubious bordering on illegal

[PTP]

Really? Keeping it is rather dubious bordering on illegal

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"Currently, there is £XXX in your holiday pot. ***IMPORTANT*** Please note that the pot empties in January and you lose any unclaimed funds. Therefore, please ensure that you have claimed all holiday pay by the 28th of December."
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