What tax code will I be put on when I use an umbrella company?

As a contractor, you may wonder what tax code you will be put on when you register with an umbrella company. We’ve created a brief overview of tax codes, what they mean, and what tax code you’ll be assigned when you use an umbrella company.

What is a tax code?

A tax code is a combination of numbers and letters used by your employer or pension provider to calculate how much Income Tax to deduct from your pay or pension. The umbrella company does not choose or determine which tax code to use—this is set by HMRC, and HMRC will tell them which tax code to use.

What tax code will I be put on when I use an umbrella company?

When you register with an umbrella company, they will ask you to provide a copy of your most recent P45 or to complete a Starter Checklist for PAYE. If you give a copy of your P45, your umbrella company will use your P45 to work out your tax code and update your details in your payroll software. If you do not have a P45, you can complete the Starter Checklist for PAYE and select the statement that applies to you. Your umbrella company will then allocate a tax code to you based on the chosen statement – HMRC, not the umbrella company, sets these tax codes.

Understanding your tax code

What do the numbers in your tax code mean?

The numbers in your tax code indicate to your employer or pension provider how much tax-free income you are entitled to in that tax year. The standard Personal Allowance is £12,570 for the 2024/25 tax year, which is the amount of income you do not have to pay tax on. You do not get a Personal Allowance on taxable income over £125,140. How much income tax you pay in each tax year depends on how much of your income falls above your Personal Allowance and how much of your income falls within each income tax band.

What do the letters mean in your tax code?

The letters in your tax code refer to your personal situation and how it affects your Personal Allowance.

You can check what your tax code means

If you need clarification on what your tax code means, you can use the government’s online tax code checker to find out.

How to update your tax code

If your income changes, HMRC will usually automatically update your tax code once they receive this information from your employer. However, if you believe your tax code is wrong, you can use the government’s online service to check your tax code and Personal Allowance. You can also contact HMRC via phone, email, post or Twitter using the information listed on the government’s website.

Request a tailored take-home pay illustration

Before registering with an umbrella company, requesting a tailored take-home pay illustration is a great idea to see what your net pay could be each week or month. Churchill Knight Umbrella will always provide a fully customized and accurate take-home pay illustration based on your circumstances, earnings and tax code (if you know it).

To request a tailored take-home pay illustration, please call our expert team on 01707 871622. You can also schedule a call, and a member of the team will contact you to discuss our umbrella service and answer any questions you may have.