How much money will I take home using an umbrella company?

If you are new to contracting or have previously operated via your limited company, getting paid by an umbrella company can often seem confusing. Many contractors often ask: “How much money will I take home using an umbrella company?”. Continue reading, as we’ll provide you with an overview of the deductions that will be made to your pay so you can get a better idea of what your take-home pay could be.

How much money will I take home using an umbrella company?

You may be wondering how much money you will take home using an umbrella company, and this ultimately depends on the tax you are required to pay and the umbrella company’s margin. All compliant umbrella companies in the UK operate Pay As You Earn (PAYE) – HMRC’s system for collecting Income Tax and National Insurance. This means you will pay taxes the same way as a permanent employee.

What deductions will affect how much money I will take home using an umbrella company?

Many tax deductions will affect how much money you will take home when using an umbrella company. When you are due to be paid, your end client or recruitment agency will transfer the assignment rate to your umbrella company. The assignment rate is your gross rate of pay along with the uplift for the employment costs.

Despite being employed by the umbrella company, as you are completing work for the client, they do not benefit from any of your work. However, as an employer, they are responsible for employment costs. Therefore, recruitment agencies will often include an uplift in the rate offered to contractors working via an umbrella company to account for these employment costs.

From the assignment rate, the umbrella company will make the following deductions:

• Apprenticeship levy – 0.5%
• Employers National Insurance – 13.8%
• Umbrella company margin (weekly or monthly)
• Employers pension deductions (if you do not opt-out) – 3%

Once the employment costs have been deducted from your assignment rate, the gross rate of pay is left. The gross rate of pay is the amount you are due to be paid before tax deductions. From the gross rate of pay, the umbrella company will make the following deductions:

• Income tax – Basic rate income tax is 20% on taxable income between £12,571 – £50,270, higher rate income tax is 40% on taxable income between £50,271 – £125,140, and additional rate income tax is 45% on taxable income over £125,140
• Employee National Insurance Contribution – 8% on earnings between £1,048.01 – £4,189 per month or 2% on earnings over £4,189 per month
• Employee workplace pension contribution (if you do not opt-out) – 5%
• Student loan repayments (if applicable)
• Other deductions you are legally required to pay

The net payment is the amount left after the employee tax deductions have been made to your gross rate of pay. This is the amount you will take home, and it will be paid into your bank account. Please visit the government’s website for more information about getting paid when working via an umbrella company.

Find out how much you could take home using an umbrella company

If you want to find out how much money you will take home using an umbrella company, why not try our instant umbrella company calculator to estimate how much you can expect?

You could also request a free, tailored take-home pay calculation, and our expert sales consultants can provide more information about our service and the deductions that will be made from your pay when you register with an umbrella company. To find out more, please call 01707 871622.