How do umbrellas calculate employers NI?

[scottwio]

I'm looking at signing up to umbrella company as my roll will now be inside IR35. I've been calculating the figures manually and comparing them against the umbrella companies figures and can't for the life of me understand how they get to their employer NI figures. I was wondering if anyone could explain or are these figures just flat out wrong and the actual cost of employer NI would be higher

As a example on giants site.
giant umbrella | giant contractor
On 3500 a week employers NI and apprenticeship levy of is shown as 413
Doing the calculation myself so taking the week amount minus the threshold
(3500 - 166) / 100 * 13.8 = 460
There's a 47 pound difference and that's not even include the apprenticeship levy? It's very confusing.

[ladymuck]

Maybe the calculation is a bit more complex

[malvolio]

I didn't think Employers' NICs had a threshold, only Employees and was a flat 13.8% of gross.

ICBW...

[ladymuck]

Maybe they've deducted something else first before deducting NI so the base on which the calculation is made is lower?

The £166 deduction is correct.

I wonder if they took off the 12-something percent for holiday pay first?

[GhostofTarbera]

I'm looking at signing up to umbrella company as my roll will now be inside IR35. I've been calculating the figures manally and comparing them against the umbrella companies figures and can't for the life of me understand how they get to their employer NI figures. I was wondering if anyone could explain or are these figures just flat out wrong and the actual cost of emloyer NI would be higher

As a example on gaints site.
giant umbrella | giant contractor
On 3500 a week employers NI and apprenticeship levy of is shown as 413
Doing the calcualtion myself so taking the week amount minus the threshold
(3500 - 166) / 100 * 13.8 = 460
There's a 47 pound difference and that's not even include the apprenticeship levy? It's very confusing.

At the end of the day only the fee of the umbrella will be the difference - no umbrella can change what tax you pay


Sent from my iPhone using Contractor UK Forum

[ladymuck]

At the end of the day only the fee of the umbrella will be the difference - no umbrella can change what tax you pay


Sent from my iPhone using Contractor UK Forum

You say that but Clarity quote £399 for employers NI so I'm now just as stumped as the OP

[lucyclarityumbrella]

On 3500 a week employers NI and apprenticeship levy of is shown as 413
Doing the calculation myself so taking the week amount minus the threshold
(3500 - 166) / 100 * 13.8 = 460
There's a 47 pound difference and that's not even include the apprenticeship levy? It's very confusing.

OK let's explain - a simple 13.8% cannot calculate the ERs NI!
Lets put this into normal working practice... An employer calculates the ERs NI at 13.8% of the taxable salary, yet for a contractor, we do not know the taxable salary, we only know the gross contract rate. So in simple terms there is payroll magic that happens with a reverse calculation to work out the taxable salary to calculate the 13.8% from that
It's not quite as standard as normal payroll is all I have to say.

[lucyclarityumbrella]

I didn't think Employers' NICs had a threshold, only Employees and was a flat 13.8% of gross.

Afraid not the Ers NI still looks at the secondary threshold before it is calculated.

[DocJ]

"payroll magic"

So the payroll magic is as follows:

e = gross earnings
s = gross salary

Gross earnings (e) is the sum billed by the Umbrella to the Agency for worked days * day rate (or hourly equivalent).

e includes the employER NIC and apprenticeship levy already, so first the gross salary (s) must be calculated from those, then s can be used to calculate NICs and PAYE income tax.

Define the relevant terms ...

g = gross expenses (umbrella's margin e.g. £100, and pension contributions ( e.g. by
salary sacrifice to SIPP or to workplace pension))
n = EmployER NIC amount
r = EmployER NIC rate %
a = apprenticeship levy amount
L = apprenticeship levy rate = 0.5%
x = ST limit (EmployER NIC) ('secondary threshold')

Define
e = s + n + a
n = (s - x)r
a = sL

substitute in the relevant definitions of n and a
e = s + (s - x)r + sL

Do some algebra to derive s from above
s = (e + xr) / (1 + r + L)

Then deduct gross expenses from e
s = (e - g + xr) / (1 + r + L)

substitute in the values of x, r and L (year 2022/2023)
(use weekly or monthly figures for NICs depending when you get paid, see https://www.gov.uk/guidance/rates-an...s-2022-to-2023)

for monthly pay
s = (e - g + 758 * 15.05/100) / (1 + 15.05/100 + 0.5/100)
e depends on your rate and hours specifically

calculate n = (s - 758) * 15.05/100 (currently for employER, there is only one rate, 15.05%, for above ST limit).

Note when calculating EmployEE NIC amount, there is a different PT rate from 06-Jul-2022 thanks to Rishi Sunak.

Have fun,
DJ

[WTFH]

(Great first post, although it is a 2 year old thread so I'd expect the earlier calculations are a bit out of date)