How are you taxed by umbrella companies

Umbrella companies can make it more easy 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 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 when you use an umbrella company,you pay your tax as you earn instead of paying your tax in a lump sum after the tax season is over. Through the system,you will pay your income tax and National Insurance contributions,assuming that you are earning enough. You’ll have a tax code that 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 current.

Currently (2018),you will pay National Insurance contributions at 12% on earnings above #162 a week and 2 percent above #892 a 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 some expenses can be claimed by you. Chargeable expenses are those refunded by your client or recruitment agency. 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 client is deemed to be under the Supervision,Direction and Control of your client,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 client. As well as 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 season,they ought to give you a P60 for your records.

What About Umbrella Companies That Pay?

Some umbrella companies will tell you that you could keep most your cover (up to 95 percent) and stillbe tax-compliant. However,official advice from HMRC claims that this is a warning signal for non-compliant companies. You should look out for only some of your income going being compensated with 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 correctly so it is important to watch out for them.

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