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 paid through the PAYE system,like employees are. But how does this 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
If you’re not already aware,PAYE stands for pay as you get. 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 may pay your income tax and National Insurance contributions. You’ll have a personal tax code which 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 up to date.
Currently (2018),you’ll pay National Insurance contributions at 12% 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 percent from #34,500 to #150,000.
Umbrella Company Expenses
Another aspect is that you may maintain some allowable expenses. Expenses are those reimbursed by your customer or recruitment agency. Other costs are non-chargeable,and the umbrella company will manage them when calculating your pay. Allowable expenses will be deducted from your income so you do not 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 once you have submitted timesheets into the umbrella company and recruitment agency or end customer. In addition to your taxes,the umbrella company will also minus your fee to the company and any deductions,such as pension contributions and holiday pay.
Payslips
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 records also.
What About Umbrella Companies That Pay?
Some umbrella companies will tell you that you can keep the majority of your pay (up to 95%) and stillbe tax-compliant. However,official guidance from HMRC says that this is a signal for non-compliant companies. You should also watch out for only a portion of your income going being paid using a loan,credit or investment that the company says isn’t subject to tax,and your obligations being routed through other companies. These could all be signs that the company isn’t paying your taxes so it is important to watch out for them.
Umbrella companies deal with your tax for you soyou don’t need to. You might pay a bit more tax,but you receive the benefits of being an employee.
-