My agency told me their payroll was handled by an external company but I now find I'm in the grips of an umbrella company which was not explained to me and not what I wanted to do. This umbrella have told me I can claim my train fares for work and lunches up to £10 - yet as far as I can see - even with these expenses allowances I'm earning less from them than I would PAYE! Looking online it seems that these expenses aren't allowable anyway. This is my first job this year so I'm not paying any income tax yet, but I'm paying Employees NI, Employers NI and a fee to the Umbrella company and still losing 1/3 of my income. I'm very unhappy about the situation. Any suggestions?
Good morning and thank you for your question.
From your comments it is pretty clear that your agency considers that HMRC will regard you as an employee for tax purposes and in those circumstances if neither your end client nor the agency will employ you then the umbrella company is really your last resort Your agency should be well aware of the deductions that the umbrella company is legally obliged to make and you would hope that they negotiated a rate for you with that in mind.
Your umbrella company will have a contract with the agency for your services and will have a Contract of Employment with you which should contain details of your salary. I cannot answer for your umbrella company but I can explain what the situation would be had you chosen Contractor Umbrella Limited.
All UK employers, including umbrella companies, are required to make payments each month to Her Majesty’s Revenue and Customs (HMRC) for Employers’ National Insurance Contributions. Currently this contribution is taken as a percentage of 13.8% of earnings over £156 per week.
So if you were our employee, paid through PAYE (Pay As You Earn), your salary would be linked to the assignment rate which is agreed in the contract between Contractor Umbrella Ltd and the relevant recruitment agency or client. We would raise an invoice to the agency/client for hours worked at the contract rate; from this we would retain a margin (currently £28.50 per week) and we would make a payment to HMRC for Employer’s National Insurance Contributions. The remainder would be paid to you as a salary which would then be subject to deductions for income tax and employee’s national insurance contributions.