Can you trust an umbrella company calculation?

Can you trust an umbrella company calculation?

‘Umbrella company calculation’ is a much-searched phrase by contractors and freelancers in the UK. And it’s no surprise. Whether you’ve been contracting for years, or you’re relatively new on the scene, it’s only natural that you want to get an idea of your take home pay through an umbrella company – if you’re considering using one. Most umbrella companies will give you an accurate umbrella company calculation. However, some (even compliant ones) will try and mislead you into using their services. We’ll explain how they do this.

An umbrella calculation should be tailored to your circumstances, and you should be given an accurate figure. Umbrellas operate PAYE, meaning you’ll be required to pay income tax and National Insurance Contributions (NICs) similarly to a permanent employee. And, you’ll also be responsible for the employment costs too (Employer’s NICs and the Apprenticeship Levy). Therefore, on average, you should expect to retain between 55% and 70% of your pay. Obviously, this depends on several factors, including how many hours you work, your rate of pay, whether you decide to contribute to a pension, if you’re paying back a student loan, etc. However, bare that figure in mind – pay retention of between 55% and 70% is realistic. If you’re shown a calculation with far higher pay retention – alarm bells should be ringing. Our recommendation – engage with an FCSA accredited umbrella company.

The most important thing you need to remember about umbrella companies is that providing they’re compliant – they all process your pay in the same way. They all offer PAYE payroll and will make the same deductions to your salary. The only thing that’ll vary between providers is their margin. The margin should be the only thing that results in a different umbrella company calculation from one provider to another.

Unfortunately, we’ve heard some stories about umbrella companies who are trying to trick contractors into using their services. In honesty – we’ve never really understood why they do this. Tricking a contractor is one way to get a quick sign-up. However, once it becomes apparent that the original umbrella company calculation was manipulated and the contractor has been lied too, they’ll leave. And, hopefully, they’ll leave the company some bad reviews online as well. We believe that if umbrella companies want to keep clients long into the future – transparency is vital.

Understanding the information that has been used to produce your umbrella company calculation is critical. Here are some quick pointers to help you make sure you’re umbrella company calculation is accurate:

  • Make sure it accurately reflects the number of hours and days you’ll work. We’ve seen some umbrellas offer much higher take home pay projections to contractors because they’ve presented a figure based on the individual working every day of the year! This isn’t realistic!
  • Some umbrellas automatically add an “expenses” allowance to their calculations. This is shady! Take it from us – it’s very, very unlikely you’ll be eligible for any expenses.
  • Did you know that once your taxable income exceeds £100,000, your allowance will be reduced by £1 for every £2 that your adjusted net income is above the threshold (abatement)? Take our word for this – umbrellas know about the abatement. However, they won’t all include it in your umbrella company calculation. If you’re on a higher rate and you think the abatement may affect you, call out the umbrella’s you’re in contact with and see if they’ve considered it.
  • Ask the umbrella what tax code they’re using. Some have been known to use a very generous but unrealistic one to inflate your projected pay.
  • You may be required to pay back a student loan, and you may wish to opt in to pension contributions. Make sure the umbrella company calculation you’re given fairly reflects your circumstances.

To summarise – all umbrellas should be offering you pretty much the same take home pay (roughly between 55% and 70%). And, they should all be honest with the mythology behind the umbrella company calculation you’re presented with. Don’t be afraid to ask as many questions as you want about the figures you’ve been presented with. Most umbrellas will give you an umbrella company calculation you can trust, but it’s best to be clued-up before you contact one.

If you’re interested in getting a free, no-obligation take home pay projection from a top 10 umbrella company, please complete the short form on this page. Alternatively, we can request a call back from a top 10 umbrella company.

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