How are you taxed by umbrella companies December 15, 2018 by admin

Umbrella companies can make it easier to take care of your tax for some of your contracts. When you use an umbrella company,you’re compensated via the PAYE system,like employees are. But how does this work,and how can the companies tax you? Here’s 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 get,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 following the tax season is over. Throughout the system,you will pay your income tax and National Insurance contributions. You’ll have a tax code which indicates to HMRC how much tax you should be paying. The thresholds for paying your taxes and differenttax bands can change annually,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% from #34,500 to #150,000.

Umbrella Company Expenses

Another aspect is that you may maintain some expenses that are allowable. Chargeable expenses are those refunded recruitment agency or by your customer. 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,Management 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 recruiting agency or end customer. In addition to your taxes,the umbrella company will also minus the commission to the company and any other deductions,such as holiday and pension contributions pay.

Payslips

Your umbrella company should send you a payslip,which details any deductions,including taxes. At the end of the tax season,they should also give you a P60 for your records also.

What About Umbrella Companies That Promise Pay?

Some umbrella companies will tell you that you can keep the majority of your cover (up to 95%) and be tax-compliant. Official advice from HMRC says that this is a signal for companies. You should also watch out for only some of your income going through PAYE, being compensated using a loan,credit or investment that the company says is not subject to tax,and your payments being routed through other companies. These could 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 soyou don’t have to. You might pay a bit more tax,but you get the benefits of being an employee.

https://www.contractoroptionscompared.com

Leave a Reply

Your email address will not be published. Required fields are marked *

-