Receiving multiple payments can be the most confusing part of being an umbrella company contractor.
However, knowing how to manage your finances effectively allows you to avoid incorrect deductions and claim expenses correctly.
Becoming an umbrella employee is an efficient way of balancing multiple payments and leaving yourself financially organised and burden-free.
Understanding & Tracking Your Payments
Tracking multiple clients along with multiple payments can feel like an extra job as a contractor. Without an umbrella company, you may often experience inconsistent payments, with varying amounts, different payment times, and even different payment methods. You may receive multiple payslips over a single tax period as an umbrella employee.
There are many potential reasons why you might get more than one paycheque in the same tax period:
You have switched assignments or clients in the middle of the tax period.
You are working on multiple assignments for different clients or agencies at the same time.
You have received a bonus or reward for a personal achievement.
You could be paid earlier in the tax period than usual, often due to bank holidays or national holidays like Christmas or Easter.
If you submitted a timesheet late, your payment could be delayed to the following tax period.
In some cases, you may be paid weekly by one client and monthly by another while working on simultaneous contracts, although this is less common.
So, whether you’re under an umbrella company or not, paying attention to your paycheques and keeping on top of pending payments is important.
Use tools such as Excel spreadsheets, financial apps, or even a physical notebook to keep track of your inflows.
One significant advantage of being an umbrella employee is that even though you may receive multiple payslips in a single tax period, you will also receive a final payslip summarising all payments for that tax period. So, even though it’s still your responsibility to chase up those pesky late payers, at least you can relax knowing that your tax will be accounted for – hassle-free.
Understanding Tax Periods
Understanding the tax periods is important so you know when deductions will be made and how much is due each period.
In addition, if you are eligible for expense claims, you can keep track of those eligible expense claims and ensure they are processed correctly by providing the correct information and receipts.
You may be paid monthly or weekly under PAYE and in each of those payments, national insurance contributions and tax deductions will be paid out to HMRC.
Alternatively, contractors who are not paid via PAYE would submit a Self Assessment Tax Return to HMRC at the end of the year. The table below helps you understand these tax periods.
Tax Period Type
Duration
Description
Yearly
April 6th to April 5th (One Year)
The tax year runs from April 6th to April 5th the following year. Contractors must calculate and report their income during this period.
Monthly
6th of one month to 5th of the next.
Monthly tax periods are used for those receiving regular monthly payments. Each period starts on the 6th of one month and ends on the 5th of the next.
Weekly
Weekly (Based on the 6th April)
The Weekly tax period starts from the day that April 6th falls on in that tax year. For example, if April 6th falls on a Saturday, weekly periods will run from Saturday to Sunday.
Balancing multiple clients & payments
It’s important to track payments and ensure that they arrive on time as a contractor.
Therefore, being upfront and clear about payment is essential.
Before you start a contract, make sure your client is clear on when you expect payments to be made and the method of payment. It’s much better to clarify these details at the outset rather than dealing with misunderstandings or delays when payment is due.
If you are an umbrella employee, your end client or agency will sign an agreement with the umbrella company to secure timely payments. You will need to submit your timesheet to your umbrella company.
Afterwards, your end client (or agency, if applicable) must sign your timesheet and pay the umbrella company.
To avoid any issues, always double-check that your hours are correct and that your end-client has signed the timesheet so you can be paid on time and correctly. Your umbrella company should be able to chase unpaid timesheets upon request.
Managing your tax & deductions
When being paid under PAYE, tax deductions are adjusted automatically. It’s good to understand your tax code and other deductions on your payslip, such as National Insurance
So, if you are on a cumulative tax code and there are imbalances in your tax deductions- such as being paid more during one tax period- your tax will correct itself in the next tax period.
However, if you are on an emergency tax code, such as Week1 / Month 1, then HMRC will make the appropriate correction either in a year or at the end of the tax year.
If this is the case and you want a more immediate response, you can speak to HMRC and discuss your tax code. For more information on discussing your tax code, visit the Gov.UK website.
Make sure you check your tax code is correct. If you have any concerns or notice that your tax code doesn’t seem right, reach out to your umbrella company or speak to HMRC.
They should be able to explain any issues or investigate the matter to ensure your tax code is accurate.
In addition, it’s valuable to understand other deductions from your pay, such as National Insurance contributions, pension contributions, and student loan repayments (if applicable).
Budgeting with variable income
When dealing with variable income, as is common in contracting work, planning ahead is essential. Make sure you’re budgeting carefully and have a dedicated savings account for emergencies, unexpected expenses, or periods of low income.
As an umbrella employee, you’re also eligible for statutory sick pay for up to 28 weeks, which can provide some financial security in the event of illness.
No one likes to consider the impact of illness or an unexpected event that might leave you unable to provide for your family long-term. However, the peace of mind that comes from knowing you and your loved ones are financially protected is invaluable.
Consulting a financial advisor to assess your situation, offer guidance, and help put appropriate protections in place can give you confidence that you’re prepared for the unexpected.
Saving for retirement & the future
Umbrella company employees should automatically be enrolled into a pension scheme. These pension schemes require an 8% contribution of the employee’s qualifying earnings.
Although contracting can feel challenging when balancing multiple clients and payments, these simple tips should help you stay organised and in control of your finances.
Thanks to Daniel Broughton from Danbro Umbrella for writing this exclusive guide.
