How are you currently taxed by umbrella companies

How are you currently taxed by umbrella companies

Umbrella companies can make it easier to handle your tax for some of your contracts. When you use an umbrella company,you’re paid via the PAYE system,like employees are. But how does this work,and how do the companies tax you? Here is an explanation of how you’re taxed by umbrella companies and what that means for you.

Tax Through PAYE

If you’re not already aware,PAYE stands for pay as you get. So once you use an umbrella company,you pay your tax as you earn instead of paying your tax in a lump sum following the tax year is over. Throughout the system,you will pay your income tax and National Insurance contributions,assuming that you’re earning enough. You’ll have a personal tax code that indicates to HMRC how much tax you should be paying. The thresholds for paying your taxes and thedifferenttax bands can change annually,so it’s always important to stay current.

Currently (2018),you will pay National Insurance contributions at 12 percent on earnings above #162 per week and 2 percent above #892 per week. The personal allowance for income tax is #11,850 with 20% paid on everything after up to #34,500,and 40 percent from #34,500 to #150,000.

Umbrella Company Expenses

Another thing to consider is that you can maintain some expenses that are allowable. Expenses are those refunded by your client or recruitment agency. Costs are non-chargeable,and the umbrella company will handle them when calculating your pay. Allowable expenses will be deducted from your income so you don’t have to pay tax on them. If your contract with your client is deemed to be under the Supervision,Management and Control of your client,you can’t claim travel and subsistence expenses.

Calculating Your Pay

Your pay will be calculated once you have submitted timesheets into the umbrella company and recruiting agency or end client. In addition to your taxes,the umbrella company will also minus the commission to the company and any other deductions,such as pension contributions and vacation pay.


Your umbrella company should send you a payslip,which details any deductions,including taxes. At the end of the tax year,they should give you a P60 for your records too.

What About Umbrella Companies That Promise More Take-home Pay?

Some umbrella companies will tell you that you can keep most your pay (up to 95%) and stillbe tax-compliant. However guidance from HMRC claims that this is a warning sign for businesses that are non-compliant. You should watch out for only some of your income going being paid with a loan,credit or investment that the company says is not subject to tax,and your payments. These could be signs that the company isn’t paying your taxes properly so it’s important to watch out for them.

Umbrella businesses deal with your tax for you through PAYE you don’t need to. You might pay a little more tax,but you also get the benefits of being an employee.

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