All UK Umbrella Companies – I’ll repeat that – all UK Umbrella Companies operate PAYE. This means that you will pay your tax as you go along in exactly the same way as a permanent employee. However, and this is vitally important, ALL Umbrella Companies operate under the same rules and regulations which means that there are no magical formulas, no elaborate schemes and no creative accounting.
Your National Insurance contributions are deducted as a percentage of your earnings this percentage is identical for all companies. Income tax calculations are a little more complicated; this is essentially how it works.
Everyone has a tax code which determines their tax-free pay e.g. the standard tax code for 2019/20 is 1250L, which means you can earn £12,500 in a year before you have to start paying income tax.
Every pound you earn over your tax-free allowance will be taxed at 20% up to £37,500; every pound you earn between £37,501 and £150,000 will be taxed at 40% and finally, any earnings above £150,000 will then be taxed at 45%. For a more detailed guide to PAYE tax download our free guide.