Clarity Umbrella puts a new take-home pay tool from the taxman through its paces, with surprisingly pleasing results.
For the first time in my 15 years in the contractor umbrella company industry, “umbrella companies” got a mention in the chancellor’s Budget speech. To be frank, writes Lucy Smith, managing director of Clarity Umbrella, it was a significant enough moment that I let out an audible gasp!
Bad guys, rotten apples, and baby steps…
While there are many implications to this (not the audible gasp part!), it’s clear that the Labour government is keen to eliminate the ‘bad guys’ in the payroll market.
And rightly so, it’s these rotten apples who are depriving the UK’s coffers.
Yet it seems this comparatively new government is taking baby steps. Yes, they have tabled the regulation of umbrella companies from April 6th 2026 as the end game but no, the provisions of that framework have not been fleshed out beyond a policy paper, leaving ‘due diligence’ to hold the fort in the meantime.
[N.B The effect of the April 6th 2026 regulation will be to shift the PAYE responsibility from the umbrella company that employs the worker to the recruitment agency that supplies the worker, or to the end-client where there is no agency in the chain].
From the due diligence focus, comes ‘Work out pay from an umbrella company’
It’s from this immediate focus on due diligence that contractors and us in umbrella company management have been handed by HMRC the tersely worded, “Work out pay from an umbrella company.”
I’m glad to say that this new umbrella company-related calculator and pay tool, plus guidance, is a good sign of things to come from HMRC, even if it is confined to the pre-end game of ‘due diligence.’
Totting up your pay from a brolly is never a ‘just like that’ process
Umbrella take-home pay calculations can be incredibly complex. There can be many variables.
So the title “Work out pay from umbrella company” may kid those new to contracting into thinking that calculating take-home via a brolly is a simple, quick, easy task. But it’s not, and it’s not normally achievable ‘just like that.’
‘Up-to-date tax codes’ and ‘year-to-date earnings’ are both pluses
Ultimately though, fear not. My use of this new HMRC tool tells me that as much thought as possible has been put into this widget, as it gives access to up-to-date tax codes, and includes earnings “year to date” to give as accurate a picture as possible for payslip-checking.
Running the tool, I can see that it provides pretty accurate figures to match what a compliant umbrella company should do, and remarkably, it does so within a few pence when running a basic calculation.
A new umbrella company ‘due diligence’ tool for agencies? It seems so
It’s possible that this tool from HMRC might enable recruitment agencies to perform some of their ‘due diligence’ on umbrellas, potentially helping them with the key task of running reasonable checks on the payroll companies they engage with.
Published by HMRC on December 5th 2024, the tool gives the option to perform the check as an employment business, to provide confirmation of payslip checking on their part, thereby ensuring the correct deductions are being taken.
Overdue official acknowledgement of ‘rolled up’ holiday pay
Refreshingly, when users run the tool, they will see an acknowledgement that holiday pay is likely to be “rolled up” within the umbrella payment, in place of the 52-week reference period.
To see “rolled up” holiday pay officially documented is a definite change, and from my calculations, this is the first time the UK government has incorporated this commonly used model of umbrella company worker holiday into .gov materials. It shows an awareness from Labour of what brollies are doing ‘on the ground,’ given that the tool uses the standard 12.07% calculation for umbrella workers.
‘Basic’ isn’t a fair description of HMRC’s gross and net umbrella pay tool
So here we have a mould-breaking contemporary tool from HMRC and contrary to criticism of it on LinkedIn, I disagree that it’s “basic.” To put the tool “Work out pay from umbrella company” through its paces, I inputted as many variables as possible.
And somewhat remarkably, it didn’t fall over.
While I would agree with the online nay-sayers that industry-built ‘payslip checkers’ will provide an even more accurate nod at what the correct deductions are when using an umbrella, I think a good fist of what should end up in a brolly worker’s pocket has been made by HMRC.
So if you’re seeking a standard calculation, .gov’s ‘Work Out Your Pay’ offer sort of lives up to its billing — not that it’s quick and easy to do.
To be patched: pensions
Less positively, pensions seem to be a bit of an area in need of development.
In my experience, a lot of umbrella companies use the ‘salary sacrifice’ pension model, or at least the auto-enrolment basis of 3% employer’s and 5% employee’s contributions.
Instead, the tool uses the model ‘Relief at Source (RAS),’ with 4% employee deductions.
The upshot? Anyone using the tool to do a ‘like-for-like’ is unlikely to get the same outcome if pensions are included, due to the number of different ways that pension can be calculated. When an outcome doesn’t match, it could foist onto the umbrella company an unjust amount of work to do to justify the figures — to questioning contractors or agencies.
Is HMRC’s ‘Work Out Pay From An Umbrella Company’ a Trojan horse?
Related, while the actual online form to fill in is anonymous, the HMRC-built software does encourage talking to the umbrella. If that doesn’t work, and presumably the numbers still don’t stack up, then the user is directed to contact HMRC.
Who knows; maybe ‘Work out pay from an umbrella company’ is a Trojan horse? After all, it’ll potentially help HMRC trace avoidance — or at the very least get contractors to highlight issues with their umbrellas.
The downside of this invite to broach discrepancies with your brolly (and then if still unsatisfied HMRC), is that if the calculator is not completed properly by the user, bonafide umbrella companies could be subjected to unwarranted checks.
New and improving — with contractors’ feedback of course
But as the Revenue cautions users: “This is a new service – your feedback will help us to improve it.”
So there are good grounds to assert that this is just the beginning of a software solution from the government to demystify the complicated issue of pay as an umbrella company worker.
My final feedback
As well as the name of the guidance perhaps giving the wrong impression that it’s easy to tot up brolly pay, the Revenue’s opening wording, unfortunately, continues the sense that calculating umbrella company take-home is a simple and seamless task that contractors can get sewn up in seconds.
HMRC says: “Work out gross and net pay if you’re a worker or employment business using an umbrella company”.
On top of wording tweaks, the tool itself needs modification on pensions. Then again; the users themselves — employment businesses and/or contractors, will need to understand themselves how the pension is dealt with. And the variables on pensions are quite diverse. So good luck HMRC’s developers!
So as Christmas nears, it’s a gold star for the Revenue…
On balance, though, .gov’s ‘Work Out Your Umbrella Pay’ tool and guidance is a sound start and I for one welcome it, bar the one or two reservations above.
So there you have it — a usually vocal critic of the government’s historically clumsy approach to umbrellas suddenly finding in favour of their new shiny take-home pay calculator from HMRC. Now even the taxman can let out an audible gasp too.
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