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Comparing umbrella company charges - gross and net of tax
Posted Oct 11, 2009
If you decide to contract via an umbrella company, alongside customer service and reliability, you are likely to compare the fees charged when making your choice.
All PAYE umbrella company employees are taxed in exactly the same way, so one of the few ways that umbrella scheme providers can compete is on price.
You'd imagine that it would be simple to compare weekly or monthly umbrella charges, however schemes may quote different rates (gross and net of tax).
The weekly or monthly fee quoted may include tax relief at the 40% rate (higher rate taxpayer). If you are a basic rate taxpayer on the 20% rate, your overall fee will actually be higher.
If you're interested in a particular umbrella company, make sure you are provided with the gross fee, as well as how much it will really cost you after tax relief (depending on your personal circumstances). Only then can you compare umbrella scheme fees on a like-for-like basis.
To calculate the real cost, simply multiply the gross umbrella fee by 0.6 if you are a higher rate taxpayer, and by 0.8 if you're a basic rate taxpayer.
Read our popular guide to comparing umbrella companies for 15 tips to help make your decision, and how a PAYE umbrella works.
Also, try our guide to joining an umbrella scheme, and a select list of leading contractor umbrella companies.