Tax, NI & Pensions FAQs
Here is a collection of some of the most commonly asked questions in relation to Tax, National Insurance and Pensions.
If you have any questions which our Tax, NI and Pensions FAQs are unable to help with please contact us for assistance.
What are the common Tax Codes?
1250L - This replaces the 1185L tax code. This means that you are entitled to a cumulative tax free allowance of £12,500 each tax year.
0T - You have not sent a P45 or completed a P46 before your first payment. Tax code '0T' means your tax free allowance has been used up or reduced to nil and your full income is therefore taxed at the relevant tax rates.
BR - You have a 2nd job/pension. All your income will be subject to 20% tax.
D0 - You have a 2nd job/pension and you are a higher rate tax payer. All your income will be subject to 40% tax.
D1 - You have a 2nd job/pension and you are an additional rate tax payer. All your income will be subject to 45% tax.
NT - You are not subject to any tax deductions (0%).
Week 1 or Month 1 emergency codes treat each week or month in isolation and gives an equal amount of tax free pay every tax week. For example a 1250L Wk1/Mth1 code means you are entitled to an allowance of £240.57 each tax week.
What are the National Insurance thresholds and rate?
The Government periodically adjusts the National Insurance thresholds and rates. Currently*:
The Primary Threshold is £166 per week
The Upper Earnings Threshold is £962 per week
- 12% Employees (earnings over Primary Threshold up to Upper Earnings Limit)
- 2% Employees (Earnings over Upper Earnings Limit)
The Secondary Threshold is £166 per week.
- 13.8% Employers (Earnings over Secondary Threshold)
If you are under 21 National Insurance Contributions are only charged to Employers over the Upper Secondary Threshold of £962 per week.
*Information correct as at 6 April 2019. Prevailing rates are also available from https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2019-to-2020.
Why do I pay Employers NI with umbrella?
In permanent employment it is the company that is liable for the Employer’s National Insurance contribution (NIC). Through an Umbrella Company, it is no different and the Employers NIC still needs to be paid on your assignment income. The rate you are offered to work through an Umbrella Company should be adjusted to allow for the fact.
This therefore needs to be taken into consideration when negotiating your pay rate with the agency or end client. Please bear in mind that if you were to accept a contract paying the same rate as when you were a permanent member of staff, you would actually take home less money because of the Employer’s NIC.
Employer’s NIC is calculated at 13.8% on earnings above £166 per week and is uncapped so, not taking into account the margin that the Umbrella Company retains, this is the minimum uplift you would need on a permanent rate to achieve a similar net pay. As an example of this; you would need to negotiate £28.45 as the minimum hourly contractor rate to take home a similar net pay as a permanent member of staff earning £25.00 per hour.
You may be offered two different rates, one to be paid directly through the agency’s payroll and another, higher rate, to have your pay processed through an Umbrella Company. The lower rate will apply if you opt to be paid directly by the agency because they themselves will be liable for the Employer’s NIC. The higher rate is offered if you are being paid through an Umbrella Company because they are liable to pay the contribution. Provided the difference between the two rates is greater than 13.8%, you will be better off through an Umbrella Company.
Remember the assignment income is not your salary rate therefore you are not paying Employers NI, and we show you all deductions made from the assignment rate to Net salary.
How do I get a National Insurance Number?
If you do not have a national insurance number you must apply for one by calling the Jobcentre Plus on Tel 0845 600 0643 to arrange to get one. Lines are open 8.00 am to 6.00 pm Monday to Friday and are normally less busy before 9.00 am.
HMRC use your National Insurance number to keep your entitlements to benefits like tax credits and the State Pension up to date.
In order to comply with HMRC guidelines, all employers have to pay Employers National Insurance. As your company is your employer, the amount paid out for Employers National Insurance is calculated and shown on your payslip.
What is Apprenticeship Levy?
The Government requires all employers operating in the UK, which meets certain criteria to make payment to the levy to fund apprenticeships, even if they don't have any. The apprenticeship levy is calculated at 0.5% of salary payments made.
Who takes care of my Tax and NI contributions?
The Umbrella Company you are employed by will ensure that you pay all necessary tax and national insurance deductions via PAYE.
Am I required to have a pension?
Yes. The UK government changed the law so that all employers must automatically enrol all eligible employees into a workplace pension. As the umbrella company is your employer it will therefore enrol you if you meet the relevant criteria.
What are the pension enrolment criteria?
Eligible - Anyone who is aged between 22 and pension age, earning over £10,000 a year
Non-Eligible – Anyone aged 16-21 or over state pension age, earning over £10,000 a year; or anyone aged16-74 earning between £6032 and £10,000 a year
Entitled - anyone aged16-74 earning below £6032 a year.
What is the pension enrolment process?
When your umbrella company reaches its staging date, or when you start employment, if the staging date has passed, you will be assessed to see if you qualify for pension enrolment and the relevant notice will be sent to you.
If you are eligible for a pension, your enrolment will be postponed for a period of 3 months from the date you qualify.
Can I start paying pensions earlier than required?
Yes. Eligible and non-eligible workers can opt in, while entitled workers can join. These documents will be sent with the pension staging date notices.
What are the minimum pension contribution amounts?
The law says a minimum percentage of your ‘pensionable pay’ must be paid into your workplace pension scheme. The exact minimum levels are as follows:
The minimum you pay - 4% of your ‘pensionable pay’
The minimum your employer pays - 4% of your ‘pensionable pay’
The government pays - 1% of your ‘pensionable pay’
What is pensionable pay?
This is your basic salary and holiday pay on your basic salary, this amount is shown on each and every pay slip.
Why do I pay Employers pensions?
In permanent employment it is the company that is liable for the Employer’s Pension contribution. Through an Umbrella Company, it is no different and the Employers Pension Contribution still needs to be paid on your assignment income. The rate you are offered to work through an Umbrella Company should be adjusted to allow for the fact.
This therefore needs to be taken into consideration when negotiating your pay rate with the agency or end client. Please bear in mind that if you were to accept a contract paying the same rate as when you were a permanent member of staff, you would actually take home less money because of the Employers Pension Contributions.
Remember the assignment income is not your salary rate therefore you are not paying Employers Pension Contributions, and we show you all deductions made from the assignment rate to Net salary.
Who is the pension provider?
NEST – The National Employment Savings Trust is a defined contribution workplace pension scheme that was setup by the UK Government to facilitate automatic pension enrolment.
What happens if I do not want to be enrolled?
If you are an eligible worker the umbrella company must automatically enrol you. However once you have been enrolled NEST (National Employment Savings Trust – Pension Provider) will send you documentation which will included details on opting out.