When you request a net take-home pay calculation from umbrella providers, the numbers should all match. But, often, they don’t. Here, we examine the tricks some unscrupulous umbrella companies use to artificially inflate workers’ pay figures.
Why all net take-home pay calculations should be the same
All compliant payroll companies should process your pay in the same way – via Pay As You Earn (PAYE).
You should expect to see a number of deductions on your payslip: income tax, employees’ national insurance contributions, and possibly pension and Student Loan payments.
You can read a more in-depth guide to the typical deductions here.
Only ONE thing should vary between providers; the weekly or monthly margin they charge (typically around £15-30 per week).
So, if you approach two umbrellas—one charging £15 and the other £30 per week—you would expect to achieve more take-home pay with the lower-margin provider.
However, this isn’t always the case.
Here are some key things to look out for when comparing net take-home pay calculations:
For most people, the standard tax code for an individual is 1257L (2025/26 tax year). This means, for example, that you pay no income tax below £12,570 per year (the ‘personal allowance’).
Some umbrella companies deliberately use the wrong tax code to inflate a worker’s take-home pay calculation. So, make sure you know which code has been used.
Rate of pay
Make sure every calculation you are given takes into account your correct rate of pay, for obvious reasons.
Hours worked
Before asking for a take-home pay calculation, thoroughly explain your working situation to the umbrella company. Sadly, it’s not uncommon for umbrellas to base calculations on the contractor working every day of the year – to inflate the calculations.
You must run through your working situation with your umbrella salesperson and explain your plans for the year, including holidays, time off, and any other reasons you might not be working.
Expenses
Prior to 2016, many umbrella employees were eligible to claim tax relief on travel and subsistence expenses.
However, the government stopped this practice because they believed temporary workers benefitted when those in permanent roles couldn’t access the same tax relief.
Legislation known as Supervision, Direction and Control (SDC) was rolled out in 2016.
These rules mean that any worker who wants to claim tax relief on travel and subsistence expenses must prove they are not subjected to supervision, direction, or control in the workplace.
Simply put, almost every umbrella employee is subjected to SDC, and it’s doubtful any compliant umbrella company will allow employees to claim tax relief on travel and subsistence expenses.
With this in mind, it’s very disappointing to learn that some umbrella companies will include an “expenses allowance” in take-home pay calculations. There is only one reason for this—to inaccurately inflate take-home pay calculations and trick contractors and freelancers into thinking they will retain more of their hard-earned money.
When requesting an umbrella calculation, check carefully to see whether or not any expenses have been included.
Most umbrella companies don’t allow employees to claim tax relief on travel and subsistence, and they don’t even have the infrastructure within their organisation to handle the associated administration. So few workers would be eligible that it’s not worth the umbrella’s time. Therefore, the fact that some include an expenses allowance in their calculations is intolerable.
If you’re currently repaying a student loan, make sure you let the umbrellas you’re speaking to know so they can include this into your pay calculations. If you are repaying a loan, it will result in you retaining a little less of your pay, and it’s essential any calculations you receive reflect this.
Most umbrella employees opt out of pension contributions, and if you fall within this category, ask the umbrellas you approach for calculations to exclude these payments.
Of course, the converse is true; if you want to pay into a pension, ask the provider to include these payments.
A small number of UK-based umbrella companies are set up to accommodate salary sacrifice for pension contributions – allowing employees to contribute more significant amounts of their pay to a private pension provider tax-efficiently.
If you are interested in this, identify an umbrella that accommodates salary sacrifice for pensions and ask for an accurate pay projection.
The £100,000 abatement that results in a loss of your tax-free allowance
Did you know that for every £2 you earn over £100,000 in a tax year, you lose £1 of your personal tax-free allowance?
Surprisingly, not many workers know this, and plenty of umbrella companies do not include the ‘£100,000 abatement’ in their take-home pay calculations.
If you are a higher earner, make sure all the calculations you are given include the £100,000 abatement. If they don’t include it – take note and accept your projection may be slightly lower in reality.
Tax avoidance schemes
Did you know that there are over 500 umbrella companies in the UK? While most a compliant with HMRC and provide a trustworthy payroll service, some are tax avoidance schemes and must be avoided at all costs.
As the name suggests, tax avoidance schemes are payment vehicles that help workers reduce their tax liability by taking advantage of apparent loopholes in the law.
They come in all shapes and sizes. Over the years, some very unusual disguised remuneration arrangements have been identified by HMRC, including companies that pay workers in shares and others that process loan payments to reduce tax (loan schemes).
Compliant umbrella companies operate a PAYE payroll model. On the other hand, tax avoidance schemes will often have strange arrangements to help workers retain more of their money.
If you ever come across a payroll provider offering you inflated pay, be instantly sceptical. They are almost undoubtedly unethical and could land you in serious trouble with HMRC in the future.
If you receive an umbrella company calculation without any clear indication that PAYE has been taken into account – avoid that umbrella at all costs.
Conclusion
Umbrella company calculations should be based on variables provided by you; including your tax code, pay rate, hours worked, and additional deductions (student loan and pension contribution, for example). Most importantly, they must be based on HMRC’s tax system – PAYE.
Even compliant umbrella companies will sometimes try to increase their calculations by a few pounds—almost certainly to gain business from the competition.
This isn’t fair, and it’s unethical. Therefore, make sure you’re entirely up to speed on umbrella calculations and how they should be worked out to avoid any unpleasant surprises on payday!
