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Is 90% Take Home Pay Possible?

Is 90% take home pay possible? The short answer? No. The long answer? Also, no. So please, please don’t touch anyone offering these schemes with a bargepole.

Unfortunately, there are non-compliant umbrella companies out there offering this, arguing that they’re 100% compliant. And even more unfortunately, many contractors and freelancers are still falling victim to it.

To help you understand the facts – and why exactly 90% take home pay isn’t possible – I’ll take you through precisely how a payslip works, then what should be deducted. 

How a payslip works

Deductions are first taken from your contracting rate – and it begins with employer’s deductions. These could be on the reconciliation page as they’re taken away before gross pay (it should be noted that most payslips are gross pay onwards).

What’s left becomes your money: your gross pay, where employee deductions are then taken. Following this, you’ll receive your take home pay, also known as the net pay. 

Employer’s deductions

You can expect the following to be deducted:

Employer’s NICs

Employer’s National Insurance Contributions account for 13.8% of deductions (excluding the tax year 2022/23, due to health and social care levy – see below). If you’re wondering why these NICs are being subtracted from your payslip, it’s technically paid by the end client.  

Apprenticeship levy

This equates to 0.05%. If your umbrella company isn’t deducting this from your payslip, they could be non-compliant. Though, this isn’t the case if they have a payroll bill of less than £3 million (only businesses with a payroll bill higher than this are required to pay the levy).

Health and social care levy

The health and social care levy is a new tax which actually affects both employee and employer NICs. For the 2022/23 tax year, an additional 1.25% was added for NICs. From 6th April 2023, it’ll be a separate levy of 1.25%, and will appear on your payslip as such.

Holiday pay

It’s worth noting that holiday pay can also show as a deduction – usually at 12.07% (though it can be more if uplifted). Whilst it may seem bizarre that this appears as a deduction, the pay can then be advanced (rolled-up) each week, so you receive the money upfront. This does mean that you’re expected to save that money for your holiday pay and that you won’t get any extra holiday pay when you actually took holiday time, however. 

If this doesn’t suit you, then holiday pay can be saved up by the umbrella until you take holiday and request it from them. You must remember to tell your umbrella when you’re taking holiday  – and they should remind you to take it – since your client or employment business/recruitment agency are unlikely to do so and the umbrella can’t pay you holiday pay if they don’t know you’re on holiday.  

You should know that each umbrella company will have their own policy for how they operate holiday pay, so please do speak to them to find out how it will work for you.

Employee’s deductions

Employee deductions are almost always exactly the same for umbrella employees as any PAYE employee and are as follows:

Pay As You Earn (PAYE) Income Tax

You’ll pay Income Tax on your earnings, providing they surpass the present Personal Allowance. Beyond this, Basic and Higher Income Tax rates then apply, depending on how much you earn.

National Insurance Contributions

Employees’ National Insurance Contributions (class 1) require you to pay on all income above the primary threshold. There’s also an upper earnings limit, which means you’ll have to pay additional NICs above a specific amount.

Pension contributions

The umbrella company should auto-enrol you into a pension scheme within 12 weeks of you starting there – though you should receive communications about this within six weeks. This is because auto-enrollment should begin once certain criteria are met, but an employer has the option to defer this for up to 12 weeks. 

For example, they might choose to delay it if you’re only working with the organisation for 10 weeks. It should be noted that you can request to join a pension scheme before the 12 weeks, and an umbrella company must honour this once received. You can opt out of a pension scheme too – but only after your first payment being enrolled.

If you haven’t been enrolled in time, this could be a sign of a non-compliant umbrella company. Though, there may be other reasons you weren’t automatically enrolled:

  • You’re under the age of 22, or above the current state pension age
  • You earn less than £10,000 a year

Other deductions

In terms of other deductions, there should be the umbrella company’s margin. There may also be additional deductions, depending on your unique situation. For example:

  • Student loan
  • Net adjustments (for any agreements, like a pay advance recovery)

Signs of a tax avoidance scheme

Now I’ve told you everything that should be deducted, it’s worth knowing about the typical symptoms of a tax avoidance scheme. These include:

  • Your payslip not showing all payments made by the umbrella company, for example when there are loan-type payments
  • Receiving extra payments and being told via email that you’ve obtained an amount of money in loans (these may also be described as ‘annuity’, ‘grant’, ‘fiduciary receipt’, ‘credit facility’, ‘capital payment’, capital advance’)
  • Payments not subject to PAYE
  • Gaining more money in your bank account compared to your payslip

If you come across what you think is a tax avoidance scheme, you can report it to HMRC via their website.

Find a compliant umbrella company

To steer clear of using a tax avoidance scheme in the first place, I suggest you check what’s deducted on a payslip. We expect umbrella companies to provide an example illustration of what a weekly timesheet would look like – whilst there are obviously assumptions used, it’ll give you a good idea of what a week would look like.

You should then seek out umbrella companies who’ve passed the right tests. FCSA has done all the compliance checks for you, so you can ensure you’re employed by an umbrella company that’s 100% compliant with tax and employment laws. Search for them here.