How are you taxed by umbrella companies

Umbrella companies can make it easier to take care of your tax for a number of your contracts. When you use an umbrella company,you’re compensated through the PAYE system,like employees are. But how does this really work,and how can the companies tax you? Here’s an explanation of how you are taxed by umbrella companies and what that means for you.

Tax Through PAYE

PAYE stands for pay as you earn,if you are not already aware. So when 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 are earning enough. You will have a tax code which indicates to HMRC how much tax you should be paying. The thresholds for paying your taxes and thedifferenttax bands can change each year,so it is always important to stay up to date.

Presently (2018),you will pay National Insurance contributions at 12 percent on earnings above #162 a 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 aspect to consider is that some expenses can be claimed by you. Expenses are those reimbursed recruitment agency or by your customer. Costs are non-chargeable,and the umbrella company will handle them when calculating your pay. Expenses will be deducted from your income so thatyou don’t have to pay tax on them. If your contract with your customer is deemed to be under the Supervision,Direction and Control of your customer,you can not claim travel and subsistence expenses.

Calculating Your Pay

Your pay will be calculated after you have submitted timesheets to the umbrella company and recruitment agency or end customer. As well as your taxes,the umbrella company will also minus the fee 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 ought to give you a P60 for your documents.

What About Umbrella Companies That Pay?

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

Umbrella companies deal with your tax for you thatyou don’t need to. You might pay a bit more tax,but you also receive the benefits of being an employee.

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