Tax calculations help needed please

BASFORDLAD

Can someone help me with some calculations please

I am going round in circles with these figures and not getting any where , Trying to work out if better of through PAYE/Umbrella

So the figures are as follows

Earnings to date for this tax year £2500. Nil tax paid. therefore way under taxable allowance so far.

Umbrella taxable income would be 229(as thats minimum wage and smallest amount that can work out tax on) (after expenses)

Out of this figure need to work out

Tax (taking in to account what have earned so far this tax year and the number of weeks left in tax year)

Employers NI and employees NI

Then i can add the lot together(tax free expenses etc) minus the umbrella fee and thats the take home pay:

PAYE Salary £370 . So just Employees NI, and tax(again taking in to account income for year)

any help would be appreciated as for some reason loosing this!. The main probiem is taking into account the income earned/not earned

agrinnall

You don't really give enough information, in particular we don't know if the £2500 earned so far this year is for the whole year since April or for a shorter period, and whether your rate of pay will remain the same for the rest of the year.

Having said that, unless the £2500 is for a period of less than 2 months then there is no way that the expenses of an umbrella company will make you better off than going PAYE, unless there is a significant difference in the rate of pay you receive between the two routes. In most cases the choice to be made is not between umbrella and PAYE, it's between umbrella and Limited Company.

BASFORDLAD

2500 is for this tax year.

Consider earnings to be constant.

The 2500 is not from the umbrella.

The choice is between umbrella and paye

agrinnall

Given that £2500 over 7 months is less that £400 a month you won't be liable to pay NI or tax (assuming you have no other income) so you would be better with PAYE - if you go with an umbrella company you'll be out of pocket by whatever their fees are.

Edited: Actually, re-reading what you've said, and trying desperately to read between the lines to understand what you haven't told us, maybe the situation is that your earnings from some source have been £2500 so far and will remain at that level, but you are now also going to be receiving additional income which can come either through an umbrella company or directly from your employer through PAYE. If that's the case then it should be possible to get some advice on which option is best, but only if you pull your finger out and actually provide the information needed - at a minimum that's estimated annual earnings from current income, estimated income for the rest of the year from the new job, your tax code, allowable expenses that you would claim under the umbrella route, and the umbrella company fees. It would also hlep to know if the umbrella company plans to pay some of your earnings as dividends (if IR35 allows for that, which seems a bit unlikely if PAYE is an option).

BASFORDLAD

I have now managed to work it out:)

agrinnall

Right, I think I'm getting a clearer picture now, although it would also be useful to know how much your full year earnings for the job that has so far made £2500 will be. However, I'll make an assumption that it'll be in the region of £5000.

That means your remaining personal allowance will be approximately £3000.

I'll also assume that the new job starts on 26/11, so that'll be 20 weeks in the current tax year.

So for the umbrella your earnings subject to tax will be 229*20 = 4580
Take off the remaining personal allowance 4580 - 3000 = 1580
Tax due @ 20% 1580 * 0.2 = 316
Tax per week = 316/20 = £15.80 (call it £16)

Employees NI on £229 is £10

Employers NI on £229 is also £10 - but that then reduces the amount available to pay you, so in fact the gross pay amount will be closer to £219. However, I'm not sure quite how to do the calculations so if we leave it at £229 your weekly take home from the umbrella will be:

Expenses of £114
Pay = Gross-tax-employee NI-employer NI = 229-16-10-10 = 193

Total take home £307

For PAYE taxable earnings are 370*20 = 7400
Take of personal alloance 7400-3000 = 4400
Tax at 20% 4400*0.2 = 880
Weekly tax 880/20 = 44
Employees NI on 370 = 27

PAYE take home - Gross-tax-employees NI = 370-44-27 = £299

So that makes you about £8 a week better off with the umbrella company, although of course there are a lot of assumptions in coming to those figures. The question you have to ask is whether that is worth the risk of HMRC deciding that in fact you are an employee and the expenses are therefore not allowable, at which point you'll find yourself a lot worse off than if you'd gone PAYE.

Employers NI

Employees NI

IR35 page

PS I have no qualifaction to go with this so this is my best attempt at it; if you want a definitive answer you'd need to go to someone who has (or hope that someone on here is prepared to respond).

BASFORDLAD

Thanks for your help:) actually 2500 was the full total for the year.

Finally found a web site that allowed you to put your earnings to date in.

The main advantage of the umbrella is it allows you to carry forward unused/unpaid expeneses so you can earn up to a certain extra per week without increasing ni or tax payments.

The tax actually worked out to be zero.

But your figures were not far off and thanks once again for taking the time to help me