UK umbrella contractor net pay.
Net take-home
—
Agency rate
—
Employer NI + Levy
—
PAYE + employee NI
—
Your breakdown
Updates live as you type| Stage | Amount |
|---|
Where your day rate disappears
The number on the assignment, say £400 a day, is not your salary. It is the amount the agency hands to the umbrella company, and the umbrella has to fund several costs out of it before anything reaches you as gross pay. Those costs are the employer's National Insurance, the Apprenticeship Levy, and the umbrella's own weekly margin. Only after they come off does the remainder become your gross pay, and only then do the deductions every employee recognises, income tax under PAYE and employee National Insurance, get taken. This calculator walks the rate down through both stages so the gap between the headline and the bank transfer stops being a mystery.
The single most misunderstood line is employer NI. When you are inside IR35 or simply choose an umbrella for convenience, the employer NI that a normal company would pay on top of your salary is funded out of the assignment rate instead. It was never your money, but because it sits inside the rate quoted to you, it feels like a deduction. The same goes for the Apprenticeship Levy at 0.5 percent. Recognising that these are employer costs bundled into the rate is the key to reading an umbrella illustration without alarm.
Building up from the assignment rate
The maths runs in two directions. Working downward, the umbrella subtracts its margin, then has to find the employer NI and Levy from what is left. Because those employer charges are themselves a percentage of your gross pay, the tool reverses the calculation: it divides the post-margin pot by 1.143 to isolate the gross pay, since every £1 of gross pay also carries 13.8 pence of employer NI and 0.5 pence of Levy. That gross figure is what your payslip will call your salary, and it is the base for your own income tax and NI.
A genuine quirk worth knowing: employer NI is only charged on gross pay above the secondary threshold of £5,000 a year, so a sliver of your earnings escapes it. The Apprenticeship Levy, by contrast, applies to the whole gross figure. None of this changes the headline truth that your take-home is typically 55 to 70 percent of the agency rate, but it explains why two umbrellas quoting the same rate can land on slightly different net figures. One presentational note: the on-screen "Employer NI and Levy" box rolls the umbrella margin in with the employer charges, so it reads a little higher than the employer NI and Levy alone shown in the table below.
A £400 day rate through an umbrella
Using the defaults, £400 a day over 220 working days with a £25 weekly margin, here is the full journey from agency rate to net pay.
The chart breaks the £88,000 agency rate into the four buckets it splits into: what reaches you, the employer charges, your own tax and NI, and the umbrella margin.
Costs that are not the umbrella's fault
Contractors often blame the umbrella for a low net figure, but the margin in this example is just £1,300 a year out of £88,000. The heavy lifting is done by employer NI, your own income tax, and employee NI, all of which you would face under any inside-IR35 arrangement. A sensible way to compare two umbrellas is to ignore the net figure they each quote and look only at the weekly or monthly margin, because the statutory deductions are identical no matter whose payroll you sit on. Be wary of any provider promising 80 or 85 percent retention through "expense" schemes; HMRC has pursued these as disguised remuneration, and the contractor, not the umbrella, carries the tax risk.
Why is holiday pay sometimes shown separately?
Umbrella companies are legally your employer, so they must provide statutory holiday pay. Many "roll it up" into your rate, meaning it is already inside the figure you take home, while others hold it back and pay it when you take leave. If your illustration looks light, check whether holiday pay is being accrued rather than included, because that is money you are still owed.
Would a limited company give me more than an umbrella?
If you are genuinely outside IR35, a personal service company can be more tax-efficient because you can take a small salary plus dividends and avoid employer NI on the bulk of your income. Inside IR35 the advantage largely vanishes, since the deemed-payment rules tax you much like an employee, and an umbrella saves you the running costs and admin of a limited company.