I have recently started working as a contractor and have been given an umbrella company as my employer. My tax code is a cumulative tax code but I'm being taxed too high. My basic pay is £600 (15per hr x 40 hrs) a week but for 2 months I will be receiving £720 a week, I was taxed 225 one week and the next 235, that accumulates to roughly 900+ a month. I have researched a cumulative tax code and it says its an emergency tax code. I have given my p45 to the umbrella company so there shouldn't be an issue with that. My umbrella company have said that this code will work its way out but I will not receive a tax rebate. I'm confused as my friend earns less than me but takes home more. (This is without my expenses being added). I'm not sure if this is all right and really want to sort my tax out?
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There is quite a lot here that I don't think you have fully understood - I'll try to help
When you work with an umbrella company you will enter into a contract of employment with them and they will enter into a contract with your agency/client. They will invoice the agency/client for your time worked - when they receive payment for these invoices they will retain their margin and they will also make a payment to HMRC for employer's national insurance - the balance is your salary which is subject to income tax and employees national insurance contributions.
If your tax code is cumulative e.g. 944L your tax free allowance will accumulate during the course of the financial year which means that, if you did not get paid for a week, your tax free allowance would still build up and would be applied to your next payment. If you are on an emergency tax code e.g. 944L Week 1 then your tax free allowance is not cumulative - it is divided into 52 equal amounts and one 52nd is applied to each of your weekly payments. So, 944L week 1 means that you receive £9445.00 tax free pay for the year - therefore £181.63 would be applied each time that you were paid.
HTH
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