What is meant by a ‘tax period’?
Working through an umbrella company means that you, the contractor, are essentially employed by your umbrella, therefore, you are given a pay slip by your umbrella, just as you would from any other employer, with National Insurance contributions (NICs) and taxes all calculated and deducted for you.
For more information on how this works, take a look at our Contractor Umbrella: Payslips page. You might also find our Guides to Contracting useful.
When talking about a tax period this refers to the period in which the umbrella pays you; in line with HMRC guidelines, this can be either within weekly or monthly tax periods.
As the tax year runs from April 6th to April 5th, monthly tax periods start on the 6th of each month, and weekly tax periods start from whichever day the 6th of April lands on for that year – so for the tax year 23-24 for example, this runs from Thursday to Wednesday.
Why might an umbrella contractor receive multiple payments in the same tax period?
There are a few different reasons why you might find yourself being paid more than once within the same tax period, for example:
- You might be working for more than one client at the same time.
- You changed clients or assignments mid-tax period.
- You might have been paid slightly earlier in the tax period than usual due to bank holidays or national holidays, such as Easter or Christmas.
- If you submitted a timesheet late it could result in overlapping payments.
- Human error.
Do I need to do anything if I’m paid more than once in the same tax period?
If you do receive multiple payments then it’s unlikely you’ll need to do anything. However, if you have any questions, please contact your umbrella company for further advice.
How does this affect the amount of tax I pay and why?
If two payments are received from your agency in the same tax period, the first one will be run and any tax-free allowance will be used before calculating the tax due from the 20% tax threshold and then the 40% tax threshold.
On the second payment received, the payroll is then rolled back and reprocessed as a total amount.
Most, if not all of this second income would fall under the higher tax threshold of 40% or even 45%, as the tax-free allowance and 20% threshold would have already been used, which is why when looking at the net pay, the amount received will be less on the second run than what would normally be expected.
This can make it seem as if you paid more in tax than you should have.
You can find some useful information about how umbrella tax works in our umbrella contractor tax section.
It’s also worth noting that if you are on a W1 (Week 1) M1 (Month 1) tax code, this will not be rectified in your next payroll as the marker indicates only the tax period being processed is included, no YTD (Year to Date) earnings or tax paid is considered.
For more information on how umbrella contracting works, take a look at our Contractor FAQs pages.
We hope you have found this page useful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01206 591 000 or email jaime.thorpe@contractorumbrella.com.
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