How Does Income Tax Work as an Umbrella Company Employee?

Income Tax as an Umbrella Employee

When contracting as an employee of an Umbrella Company you may see variations in your pay, which will inevitably also mean changes in the amount of tax you’ll pay.

In this blog we look at the reasons behind tax changes in your payslip, to help you understand it further.

If you start a contract halfway through the year – you’ll have accumulated a balance of tax allowance, and therefore might not pay any initial tax when you start your contract.

Frequency of pay – your earnings and allowances for the year-to-date will determine how your tax is calculated and how much you’ll end up paying.

New tax year – starts on April 6^th every year, and this is when your tax qualifying earnings for the new tax start again from 0. Depending on your earnings and the current rate for personal allowance you may start paying tax, or even more / less than before.

Tax free personal allowance – The standard personal allowance is currently £12,570 for the tax year 2024/25, and will be fixed at this rate until 2027/28. As a PAYE employee of a Umbrella Company, your allowance is spread across 12 months, so there’s no payment for income tax for the first £242 a week (if paid weekly) or £1,048 a month (if paid monthly).

What happens if you’re not currently contracting – you may find that your tax is reduced when you do next get paid, to account for the missed weeks / months of work.

Non-standard tax codes – Different tax codes will impact the amount of tax you pay. If you see a different code on your payslip, or have questions about your current one, speak to one of the SG Umbrella team who will be able to help.

SG Umbrella – here to answer all your payslip questions

Got questions about your SG Umbrella payslip? Get in touch! The team are always available to talk you through your payslip, to help you understand how much tax you’ve paid, and what this means for your take home pay.