How are you taxed by umbrella companies

Umbrella companies can make it more easy to take care of 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 really work,and how do the companies tax you? Here is 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 once you use an umbrella company,you pay your tax as you earn instead of paying your tax in a lump sum after the tax year is over. Through the system,you will pay your income tax and National Insurance contributions. You’ll have a tax code that indicates to HMRC how much tax you should be paying. The thresholds for paying your taxes and thetax bands can change each year,so it is always important to stay current.

Currently (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 expenses that are allowable can be claimed by you. Chargeable expenses are those refunded by your customer or recruitment agency. Other expenses are non-chargeable,and the umbrella company will manage 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 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 into the umbrella company and recruiting agency or end customer. As well as your taxes,the umbrella company will even minus your commission to the company and any other deductions,such as pension contributions and holiday 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 records too.

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. However,official guidance from HMRC says 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,investment or credit that the company says is not 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 businesses deal with your tax for you through PAYE soyou don’t have to. You might pay a tax,but you also get the benefits of being an employee.

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