This page will help you calculate how much you can take-home when you use an umbrella company. After reading this article, you will get a good idea on how your pay is calculated before it hits your bank account.
Using our information, you will also be able to figure out which umbrella company gives you the maximum take-home pay. It will help you appoint the umbrella company that benefits you the most. We have a team of umbrella company specialists who are also offering free guidance to contractors (no cost, no obligation). So, feel free to request a call-back and we will be in touch. We will email you first to take your appointment and then call at your preferred date and time.
Without wasting any further time, let us get into the calculations part.
When an umbrella company calculates your take-home pay, they start with the invoice value. This is determined by multiplying the hours/days by the rate. In our case study, we will use £200 day rate to calculate the net take-home pay.
Below is an example of a calculation based on the £200 per day, 5 days per week, weekly calculation.
200 x 5 = 1000
Minus margin 10 = 990
Minus Employers NI calculation, 990-170 / 113.8 * 13.8 = 99.44
Taxable pay = 890.56
Minus the tax calculation 890.56 -241.73 / 100 * 20 =129.77
Minus the NI calculation 890.56 -184 /100 * 12 = 84.72
890.56 – 84.72-129.77 = 676.07
676.07 is the worker’s net take-home
Important note: The umbrella margin will differ between umbrella companies.
For a personalised quote, please fill in your details below and our umbrella company specialist will get in touch with you via email. For detailed explanation based on the above example, please continue reading the article.
Below is the explanation based on the above calculation example:
When an umbrella company calculates the costs, there are a few things to consider like apprenticeship levy, but we are going to leave this out of the calculations. Some of the larger umbrella companies will have a further deduction of 0.5% as they fall into the 2 million payroll requirement. So, these 2 things, we will not get into, as it is more on a case-to-case basis.
Some umbrella companies allow expenses that are deductible depending on a contractor’s SDC status. Legitimate business cost expenses include parking at or near an assignment, training or training manuals, mileage (this is the one that SDC status will determine if it is allowed, no SDC = that it can be claimed). Each umbrella company may have different policies on the claim process for electronic equipment.
You would also minus any pension contribution here which includes employers’ contributions for auto enrolment pensions (most umbrella companies will defer these contributions for 3 months) and private pension contributions.
Employers’ national insurance is then calculated at 13.8% after an allowance, for weekly pay this allowance is £170 per week and for monthly it is £737.
The value left is the worker’s taxable pay. The taxable pay is used to calculate both tax and national insurance and has different thresholds.
Firstly, tax calculations are based on a series of thresholds which are determined by their tax code, I would personally suggest doing all your calculations on the standard 1257L code on a week 1 basis.
These are the allowances for the standard tax code this year:
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% | Higher Rate | £50,271 to £150,000 | 40% | Additional Rate | over £150,000 | 45% |
To work out what the weekly and monthly tax allowances are for these periods you divide the top end of the bracket by 12 or 52, as an example the personal tax-free allowance per week is £241.73.
National insurance is calculated in a similar way although some people are exempt from paying NI this is anyone younger than 21 or 65 and over. Below is a table of national insurance categories and the necessary contributions per bracket.
| Category Letter | £120 to £184 (£520 to £797 a month) | £184.01 to £967 (£797.01 to £4,189 a month) | Over £967 a week (£4,189 a month) |
|---|---|---|---|
| A | 0% | 12% | 2% |
| B | 0% | 5.85% | 2% |
| C | N/A | N/A | N/A |
| H | 0% | 12% | 2% |
| J | 0% | 2% | 2% |
| M | 0% | 12% | 2% |
| Z | 0% | 2% | 2% |
Once all of these are calculated this leaves you with the your net income, if expenses were deducted at the beginning of the calculation, they would be added back on here.
For a no cost, no obligation personalised quote based on your contracting status, please use our calculator or write to us on [email protected]
Calculations and all major inputs by RM Business Associates.