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Umbrella Deductions

Q. A company listed a job at £400 a day but claim it is inside IR35 …all agencies are now listing the ‘umbrella rate ‘ for this at £250 to £275.

My question is how can the agencies deduct £150 to £125 from the original rate to include it inside an umbrella company. I asked one of the agencies and they insisted that the contractor has to go with their umbrella rate if ’employed’ through them.

Can someone at Contrator Weekly address this issue please.

Surely who the contractor choses to use as an umbrella company is optional. 
Also what are the deductions for? The agency were unclear (and it is hard to insist when one is looking for a job)
. If a contractor wants to utilise their maximum pension contribution then these deductions are too high


Also can you please look at how agencies are taking large Umbrella deductions and not allowing choice to the contractor on which umbrella company they chose.

And also the large deductions?

A. The agency/public body can unfortunately dictate that you use an umbrella company, and even the umbrella company you use for the contract.

Agencies have an obligation to ensure they are not facilitating tax avoidance, which includes ensuring the contractors they place are operating compliantly. This liability on the agency therefore, will mean they are likely to use a preferred umbrella company which they have vetted for compliance.

The agency/public body is under no obligation to engage a contractor who is unwilling to accept their terms.

We cannot comment on what the deductions are for as this may differ between the contract roles advertised and between agencies placing them.

It is likely however, that the rate advertised is indicative of your take home pay with the following included in that deduction: PAYE tax and NICs, and umbrella company fees. Most umbrella companies have online calculators which may help you indicate the deductions being made.

A calculation of a £400 rate using the Contractor Umbrella PAYE calculator for example, provides the following breakdown which comes to the approximate umbrella rate you have mentioned.

Employer National Insurance: 25.68
Employment Tax: 1.72
Employee National Insurance: 22.33
Employee Tax: 24.35
Total All Tax: 74.08
Margin retained by umbrella company: 29.50 (weekly fee)
Total Net Income: 296.42

By Contractor Doctor


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1 thought on “Umbrella Deductions”

  1. Maria Griffin

    Thank you for the reply …but the £296.42 is alot different to £250 or even £275 a day

    Seems strange that different agencies are quoting such different numbers for the same contract

    Can I just say your replies while helpful give the implication that the contractor is trying to defraud when in fact its the agencies who are getting a double payout (agency fees and umbrealla fees) and are not allowing the contractor to shop around …seems wrong and a double wammy on poorly paid contractors
    The £400 a day rate is for a senior BA role which is paid at at least £600 in the private sector and given that the rate is further reduced to £250 a day then it makes no sense to take such a contract
    Plus agencies quoting figures without pension contributions make little sense when everyone should be in a pension plan

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