Take home pay calculation

DE_612183

I'm working through an umbrella company at the moment and I can't work out their method of tax and ni calculations.

Does the Employee NI and Income Tax BOTH get based on the gross payment, or do I deduct the employee NI, and then the balance is subject to tax?

Thanks if anyone knows

Dazed_and_C0nfused

You can't deduct employee NI before calculating the tax.

The tax is based on the taxable pay in that pay period (a specific tax week or month), the tax code being used and whether it is being used on a cumulative or non cumulative basis.

Taxable pay is often reduced by net pay pension contributions.

DE_612183

Dazed_and_C0nfused said:

You can't deduct employee NI before calculating the tax.

The tax is based on the taxable pay in that pay period (a specific tax week or month), the tax code being used and whether it is being used on a cumulative or non cumulative basis.

Taxable pay is often reduced by net pay pension contributions.

Ok, thanks

Grumpy_chap

Working through an Umbrella Company, the pay calculation is like this:

1. Gross received from end Client / Agency
2. Umbrella margin deducted (retained by UC)
3. Allowable expenses deducted (mileage etc) and these will be paid to the employee without any tax or NI liabilities
4. Employer's pension contribution deducted and paid into the employee's pension scheme
5. Deduct holiday pay, usually calculated on the basis of NMW (retained by the UC and paid to the employee when they take annual leave).
6. Whatever is left then covers:
7.     employer's NI 
8.     apprenticeship levy
9.     Basic salary (NMW) plus bonus to employee, paid as salary subject to income tax and employee's NI (plus employee's pension if appropriate).

The above assumes that the UC is paying a fixed pension contribution as employer pension contribution (most tax efficient, using a salary sacrifice) - if this is done, then the employee's pension at (9) is zero.  If this is not done, then the employer's pension has to be calculated later in the process as it is a percentage of the salary (NMW plus Bonus).  

Although 6, 7, 8, 9 is the order deductions are applied, there is an element of backward working to arrive at the numbers as the values of 7 & 8 depend on the total salary at (9).

Hope that helps.