Q. Waiting on first weekly payment from umbrella company, just been told i’m being paid only 66% of invoice instead of 81% due to me not being paid for 20days and it being a new tax year? I don’t really understand tax and sadly trust people to deliver what they say they will, can anyone describe why this happened in simple terms please?
A. Unfortunately there is not enough information here to be able to provide you with a definitive answer. You do not say whether or not the promised 81% value of your invoice was net of tax and NIC and Umbrella fee. However the attraction of Umbrella companies to contractors is the convenience factor of not having to deal with the administration of running their own business and probably more importantly the ability to be able to claim generous travelling expenses. The latter however is under scrutiny by HMRC and this longstanding practice may soon come to an end.
You are right to be concerned however about the news that your income retention is to fall dramatically from 81% to 66%. Given below is an illustration to help you better understand your tax position:
Contractor earns £35 per hour & works 35 hours per week. Their gross weekly salary is therefore £1,225.
According to a respected Umbrella company’s take home pay calculator, this contractor would receive £915.57, representing approx. 75% if the gross earnings. Under normal PAYE the net pay would be £851.39, which represents approx. 69.5% of gross earnings.
As your first payment fell in the final week(s) of the 2014/15 tax year, it could be that there are PAYE coding issues that are affecting your net pay.
There maybe a legal issue at stake here & I would recommend that you talk to your employer (Umbrella provider) asap for a full explanation as to why your net earnings are being dramatically slashed.
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