How are you taxed by umbrella companies

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

Tax Through PAYE

PAYE stands for pay as you get if you’re not already aware. 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 season is finished. Throughout the system,you may pay your income tax and National Insurance contributions. You’ll have a tax code which indicates to HMRC how much tax you should be paying. The thresholds for paying your taxes and differenttax bands can change each year,so it is always important to stay up to date.

Presently (2018),you’ll 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% from #34,500 to #150,000.

Umbrella Company Expenses

Another aspect is that some allowable expenses can be claimed by you. Expenses are those reimbursed recruitment agency or by your customer. Other expenses are non-chargeable,and the umbrella company will handle them when calculating your pay. Allowable 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,Management and Control of your customer,you can not claim travel and subsistence expenses.

Calculating Your Pay

Your pay will be calculated once you have submitted timesheets into the umbrella company and recruitment agency or end customer. As well as your taxes,the umbrella company will also minus your commission to the company and any deductions,such as pension contributions and holiday pay.


Your umbrella company should send you a payslip,which details any deductions,such as taxes. At the close of the tax season,they should also give you a P60 for your documents too.

What About Umbrella Companies That Pay?

Some umbrella companies will tell you that you could keep the majority of your cover (up to 95 percent) and stillbe tax-compliant. However,official advice from HMRC says that this is a warning sign for businesses that are non-compliant. You should also watch out for only a portion of your income going through PAYE, being paid with a loan,investment or credit that the company says is not subject to tax,and your obligations being routed through other businesses. These could be signs that the company isn’t paying your taxes so it is important to watch out for them.

Umbrella businesses deal with your tax for you so thatyou don’t have to. You might pay a tax,but you also get the benefits of becoming an employee.

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