When you work through an umbrella company in the UK, you are an employee for tax purposes. This means you must pay income tax and National Insurance contributions on your earnings.
Income tax
Income tax is calculated on your taxable income: your total gross earnings minus your personal allowance and any other tax-free allowances.
The personal allowance for the 2025/26 tax year is £12,570. This means you will not have to pay income tax on the first £12,570 of your earnings. Any earnings above this amount will be taxed at the following rates:
- 20% on earnings between £12,571 and £50,270
- 40% on earnings between £50,271 and £125,140
- 45% on earnings above £125,140
Employers’ and Employees’ National Insurance
Both employers and employees pay National Insurance contributions (NICs).
As an umbrella company contractor, you are responsible for paying employers and employees NICs.
Employers NICs
At first, this might seem strange, but you can find out more in our guide: why am I paying employers NICs as an umbrella contractor?
Your assignment rate is inflated to include ’employment costs’, including your employers’ NIC liability, which is:
- 15% on earnings above £5,000 per year.
Employees NICs
You pay employees’ NICs on your gross pay (i.e. after all employment costs have been deducted from your assignment rate).
The employee National Insurance contributions rates are:
- 8% on earnings between £12,570 and £50,270.
- 2% on earnings above £50,270.
Your umbrella company will automatically deduct your NI and income tax liabilities and pay HMRC on your behalf when it processes your payroll.
Other deductions
In addition to income tax and National Insurance contributions, your umbrella company may also deduct other amounts from your pay, such as:
- Student loan repayments
- Pension contributions
- Professional memberships
- Health insurance
- Travel expenses
It is important to check with your umbrella company to see what deductions they will make from your pay.
Read our guide to umbrella company expenses for more details.
How to calculate your take-home pay
To calculate your take-home pay, you can use the following formulas:
1. Assignment rate – employment costs (Employers NICs, Apprenticeship Levy, Employer Pension Contributions, etc.) = Gross pay
2. Gross pay – Income tax – Employees NICs – other personal deductions = your net take-home pay
Don’t forget – your assignment rate includes employers’ NICs and other employment costs. These are deducted before your gross pay is calculated.
Tax tips for umbrella company employees
Here are a few tax tips for umbrella company employees:
- Make sure you understand your tax code. Your tax code is a number that tells your employer how much tax to deduct from your pay. You can find your tax code on your P45 or by contacting HMRC.
- Contribute to a pension. A pension is a tax-efficient way to save for retirement. You can contribute up to £60,000 per year to a pension and receive tax relief on your contributions. All employers must automatically enrol you into a workplace pension scheme, unless you opt out.
- Gift aid your donations. If you donate to a charity, you can increase the value of your donation by 20% by claiming gift aid. To claim gift aid, your charity must be registered with HMRC.
- Check your payslip regularly. Make sure that your umbrella company deducts the correct amount of tax and National Insurance contributions from your pay. If you have any questions, contact your umbrella company.
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