100k+ Tax threshold through umbrella

[mb7ct]

Hi all


After having my tax code shifted around recently and taking a large tax chunk out of take home pay I am keen to understand the most efficient use of earnings in the new tax year coming up.

My day rate with my agency is 500pd, meaning HMRC have put my expected earnings next year to be £130,000 gross. This obviously wipes out my personal allowance and chucks me into the 60% stinger tax rate with an awful tax code.

However this presumes that I will be working every single day and doesn't include holiday days/sickness.

Assuming 30 days holiday + 8 bank holidays on 500pd = £19,000 that would bring my base expected earnings down to £111,000. Should I be telling HMRC that is my expected earnings gross and give me a tax code appropriate?

Also to bring me down under the 100k barrier, Can I say I will pay £12,000 at source into my SIPP and so my projected earnings will be more like £99,000 or would that come under a rebate at self assessment?

Thanks for any advice.

[WTFH]

Have you been contracting long?
Is this inside or outside IR35?
What tax code are you on?
You say you are going through an umbrella - which umbrella are you using?
How much do they charge for their services?


Before providing advice on how to get figures down, it would help if we had answers to the above, because the only way to get from £500 per day to £130k to you is if the umbrella is providing their services free of charge and has not offered you a pension etc.

[mb7ct]

Thanks for your response.
I have been contracting for 10+ years but only started umbrella in November after a short stint in a perm role.
Inside IR35 1275X currently, but my concern is that is going to change due to the estimate gross.
Going through Nasa as it stands (just left the abysmal Parasol)

Their margin is quite small - i think £14 per week.
So yes taking that into account the day rate will be reduced to less than 500 but it wouldn't be far off from 130 gross on my calculations unless the gross provided to HMRC to determine the tax code is the Taxable gross? (After Employment Costs (ENICs, App Levy etc))

[Whitelime]

Thanks for your response.
I have been contracting for 10+ years but only started umbrella in November after a short stint in a perm role.
Inside IR35 1275X currently, but my concern is that is going to change due to the estimate gross.
Going through Nasa as it stands (just left the abysmal Parasol)

Their margin is quite small - i think £14 per week.
So yes taking that into account the day rate will be reduced to less than 500 but it wouldn't be far off from 130 gross on my calculations unless the gross provided to HMRC to determine the tax code is the Taxable gross? (After Employment Costs (ENICs, App Levy etc))

HMRC are interested in your taxable salary (i.e. after employment costs & salary sacrifice).

[mb7ct]

HMRC are interested in your taxable salary (i.e. after employment costs & salary sacrifice).

Ah right - that's where I have been going wrong then. And helps my calculations a lot - should just put me under the 100k mark in that case. thanks

[Bodger]

Rough maths using the standard 46 weeks.

46 * 5 * 500 = £115,000

Deduct Umbrella costs @ 14 x 46 = £644

Remaining = £114,356

Deduct Employers NI @ 13.8% and Apprentice Levy at 0.5% = £14,307.01 (£114,356 - (£114,356 / 1.143))

Remaining Salary = £100,048.99 (£114,356 / 1.143)


Take home pay should be roughly £1282 per week, assuming rest is standard and a full year on just this rate. Take code should be 1255L? ...something like that

Edit - Above assumed dividing weekly pay equally. For the 46 weeks worked at full 5 days, then take home would be roughly (£1282 x 52/46) = £1449