How do umbrella companies work out their after tax figure?

[Bones]

Hello all. I recently started contracting and it was a right royal pain trying to find an umbrella company (Loved the article by the way on comparing umbrella companies- I only wish you posted it sooner!). I can appreciate that Umbrella Companies use their after tax fee to promote themselves as it is lower than the before tax fee, but there seems to be no logic in how they quote for high rate tax payers. For example, Crystal umbrella state that their weekly fee is £27.50. This equates to £16.82 after tax relief, and £14.39 if you are a high rate tax payer. Parasol on the other hand claim that their fee of £27.50 a week equates to £11.95 a week for high rate tax payers.

Why is there this discrepancy between fees which are ultimately the same before tax relief? Just exactly how much would my hourly or day rate have to be in order for £27.50 to become £11.95?

[Azazel]

Lick their finger, stick it in the air?

[The Undertaker]

Hi Bones,

Honestly do not worry about it.

the figure you will see coming off your invoice value is the £27.50.

The next figure is plucked out of the air based on 'average' values.

For example lets say your first contract is on a low rate and so you are a low rate tax payer but halfway through the year you get a better contract and become a high rate tax payer.

All you will see is that the £27.50 keeps coming off your invoice value - as to what the actual value will be after tax over a year is anyones guess and will depend on what your final yearly earnings are.

It is just a ruse by brolly companies to make it 'seem' they are cheaper than they actually are - and to offer a sort of comparison against going limited and paying accountancy fees (which will come out of your company account and so will not be subject to personal tax).

Honestly don't lose sleep over it.

[curleyted]

Would it also be affected by the expenses you claim? Since this has the effect of "reducing" your gross pay figure.

[The Force]

The difference between Parasol and Crystal is the calculation of employees NI. Parasol are calculating it @ 11% and Crystal are calculating it at 1%. Whilst Parasol are not specifically wrong to do this, the Crystal guide is probably more realistic.

[Malvolio]

Originally Posted by The Force

The difference between Parasol and Crystal is the calculation of employees NI. Parasol are calculating it @ 11% and Crystal are calculating it at 1%. Whilst Parasol are not specifically wrong to do this, the Crystal guide is probably more realistic.

Forgive my ignorance of the esoteric mysteries of umbrella working, but just what are you wittering on about? Given a gross income that is totally liable to PAYE/NICs, how do you come up with different applicable percentages for the same, legally-defined calcualtion? And please don't say "Expenses"....

[The Force]

Oh dear Malvolio, didn't mean to upset you. I thought it was a quite simple response. I didn't realise that it would cause anyone quite such consternation.

I was answering the original question of why the 2 calculations are different and that reason is because the 2 companies have calculated a different rate of employees NI.

(didn't mention the "E" word!)

[Malvolio]

Originally Posted by The Force

...I was answering the original question of why the 2 calculations are different and that reason is because the 2 companies have calculated a different rate of employees NI...

Ah, but that's the bit I don't follow. There's only one rate for Employee NI...

[The Force]

For employees, Class 1 national insurance contributions on earnings between £110.01 and £844 per week are calculated @ 11%. Over £844 per week and it is calculated @ 1%.

[Malvolio]

But thats the same for everyone. You can't selectively decide which to use...

Perhaps the various umbrellas providers shoud try and decide which set of data they can use to provide a true basis of costs/returns; I've yet to see anything that would stand a true comparison.