Why is my umbrella take home pay illustration different to my actual net take home?

Umbrella companies will provide you with an illustration to give you an idea of what your take home pay is likely to be after all relevant deductions have been made. While these illustrations are as accurate as possible, it is important to remember that they are only examples, and your actual take home may differ slightly. Please keep reading and we’ll explain why this is the case.

Your illustration will differ slightly to your actual net take home pay

It is important to remember that umbrella company calculations are illustrative projections to give you an idea of what your take home pay will be each week or month. Umbrella companies strive to make illustrations as accurate as possible. However, as we do not receive your tax code or information about previous earnings until you register, we are unable to give you exact figures.

Churchill Knight Umbrella prides ourselves on being transparent from the start, and our illustrations show what deductions you can expect to see when you get paid through us. Our expert consultants will be happy to explain these to you in detail over the phone and answer any questions you may have. You can find further information about umbrella deductions on our website.

The tax code used in the illustration may be different to your tax code

Your net take home pay will differ slightly from your illustration as an umbrella company will not know your tax code until you register. Therefore, we do not have any information about your previous earnings or the amount of tax you have paid in the financial year. Your tax code will affect how much tax is due, which in turn affects your net take home pay.

Most umbrella companies (including Churchill Knight Umbrella) will use a 1250L Week 1/Month 1 tax code in their illustrations. This tax code includes the £12,500 tax-free Personal Allowance which will be given to you in equal portions throughout the year. We do this to provide you with the most accurate figure we can. 

It is crucial you understand which tax code has been used to calculate your take home pay illustration as some providers may use a tax code that gives you a greater tax-free allowance, so your take home pay seems higher. More information about why umbrella companies may be quoting you different take home pay illustrations, and the deductions that are included in these illustrations can be found on our blog.

Our illustrations use English tax codes

If you have been given an illustration based on an English tax code but are a Scottish taxpayer, you will notice a difference in your take home pay. Please let us know if you are a Scottish taxpayer because our calculators have a Scottish tax code option which takes into account the Scottish allowances – giving you a more accurate take home illustration.

If we do not receive a P45, you may be put on an emergency tax code

If your take home pay is significantly lower than your illustration, you may be using an emergency tax code. You will be put on an emergency tax code if you do not send us a P45 from your previous employer or complete the New Worker Checklist.

We will actively encourage you to complete the New Worker Checklist as soon as you join so that we can pay you accordingly. A link to the new start checklist is included in your welcome email.

If you are unable to provide us with a P45, fail to complete the New Worker Checklist, or are unable to complete the New Worker Checklist, we urge you to speak to HMRC immediately, as they will be able to assist. The longer you spend on the emergency tax code, the lower your take home pay will be (although you can claim back overpaid tax at the end of the year by completing a self-assessment).

The number of weeks included in the illustration

Umbrella take home pay illustrations are calculated on the assumption of working either 52 or 48 weeks per tax year, depending on whether you will be paid monthly or weekly.

Churchill Knight Umbrella’s monthly illustrations are based on 52 working weeks because it creates a calculation using the average number of working days per month, which is 21.66 days (52 weeks ÷ 12 months x 5 days per week). Calculating estimated take home pay this way gives you a more realistic, average take home pay over the course of the whole year. However, bear in mind that the actual take home pay will vary depending on how many days you actually work in any given month (20 days, 22 days, etc).

If you are interested in a weekly take home pay illustration, this will be calculated based on you working 48 weeks in the year. This is the most realistic way to illustrate weekly take home pay as it takes into account time off work and Bank Holidays.

The amount of Tax and National Insurance you pay will depend on how much you earn throughout the year

Illustrations provided by any umbrella company will be based on a yearly income projection, divided by the selected number of weeks or months within the calculation. At the end of the tax year, if you have earned the projected figure and have worked the same number of weeks or months within the illustration, you will take home the net figure advertised – providing the tax code is correct.

If you have earned more or less than the yearly projected figure in the illustration, or have worked fewer or more weeks, your take home pay will differ to the advertised net figure.

Due to the nature of contract work, you will never know exactly how much you will have earned at the end of the tax year because you do not have a set salary or set number of days you can take as holiday (like a permanent employee). The umbrella company will tax you on a Year 1/Month 1 basis and will be asked by HMRC to tax you as if you are going to earn your weekly/monthly rate throughout the whole year.

If your role finishes before the end of the tax year and you have overpaid in tax, you will see adjustments in your tax payments throughout the rest of the year to rectify this. Alternatively, you will be due a rebate at the end of the tax year.

Did you opt to have your Holiday Pay advanced or accrued?

When you work through an umbrella company, you can choose to have your Holiday Pay advanced or accrued. Most umbrella illustrations will show Holiday Pay as advanced (paid alongside your salary each week or month) as this is the preferred option by most contractors.

If you choose to have your Holiday Pay accrued, you will notice a significant difference in your net take home pay compared to your illustration. This is because your Holiday Pay has been retained (as requested) and paid into a pot which you can draw from at a later date. Please remember this is your money, and we have not taken it from you – you can request it to have it paid to you whenever you like.

You will automatically be enrolled into a pension scheme after 12 weeks

It is a legal requirement for umbrella companies to enrol employees into a pension scheme after 12 weeks, but you can opt-out if it is not something you require. After 12 weeks, your net take home pay will drop slightly as additional pension deductions will be taken from your contract rate.

Most umbrella companies will not include pension deductions in their illustrations, as many contractors opt-out as they have an existing pension scheme in place. However, if it is something you are interested in and would like your illustration to include pension deductions, please let us know as we can include it for you.

Some umbrella companies will include expenses in their illustrations

Some umbrella companies will include a lump sum for expenses in your illustration. This will present you with a more favourable take home pay calculation. Once you register, you may find you cannot claim these expenses as you are subject to Supervision, Direction or Control (SDC). As a result, you may see a decrease in your net take home pay from your illustration.

Don’t be fooled by unethical umbrella companies who are trying to trick you into using their services. Churchill Knight Umbrella will not include any expenses in your take home pay illustration – unless you specifically ask for them to be included.

All umbrella companies will make the same tax deductions

All compliant umbrella companies will make exactly the same tax deductions which are determined by HMRC. For example, if every umbrella company offered their service for the same margin (let’s say £25.00 per week), you would get the same take home pay – as the only thing that differs between compliant umbrella companies is the margin.

Our objective is to provide every contractor with a transparent and honest service from the very beginning

We believe in building relationships with our clients, which is why our illustrations clearly show the deductions you will see when you sign up to our service.

From enquiry to sign up, our Consultants are informative every step of the way, and our commitment to compliance means you’ll be in the safest hands. For more information about our service or if you would like a take home pay illustration, please schedule a call for a time that suits you and we will be in touch.