Understanding your payslip when using a contractor umbrella company

It is essential to understand the information on your payslip if you are a contractor or freelancer managing your payroll through a contractor umbrella company. However, recent research showed that almost one million self-employed workers in the UK still struggle to make sense of their payslip.

Understanding your payslip, the tax codes, letters, expenses and deductions will ensure that you do not face fines from HMRC and lose money in the long term.

What information can be found on your payslip?

On your payslip you will find:

  • Gross salary and net salary
  • Tax code
  • Pay rate
  • National Insurance number

Gross salary and net salary

Your gross salary is the amount of money you have earned before any income tax, national insurance or any other form of deductions has been subtracted from the amount.

The net amount on your payslip represents your take home pay, this is the amount after all deductions have been made.

Tax code

On your payslip you will also find your tax code, your tax code represents the amount you earn before you are taxed. For example, if you have a 647L code, it means that you can earn £6,470 before you are required to pay tax. If you earned £11,000 then you would have to pay 20% tax on £4,530. The letter, of which there are nine in total, is more straightforward and simply relates to circumstances such as age or employment situation.

This is provided by HM Revenue & Customs (HMRC) for use by your contractor umbrella company in calculating the correct amount of tax to deduct under the PAYE system.

Always make sure your tax code is correct as you could be overcharged. If you think it is wrong then get in touch with HMRC immediately.

Pay rate

Your pay rate is the amount of money you earn per unit of time, this could be per hour, day, week or month.

National Insurance number

Your National Insurance number (Ni No or NINO) is a unique personal account number, provided to you at the age of 16 if you live in the UK or to persons who come from abroad to work in the UK.

It is proof of your eligibility to work in the UK and is used for some purposes in the UK tax system and social security system.

Understanding your payslip while using a contractor umbrella company will ensure you are receiving the right amount of money, the right amount of deductions are being taken and HMRC are holding the correct information about you.

If you would like your payslip explained further we are always happy to help. Call us on +44 (0)1923 277 900.

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William Cadden, Self-Employed Contractor

“For me, Futurelink Group was the best solution, as a foreign and a lack of knowledge of the UK rules, they were extremely helpful in all aspects. Always fast in answering all my questions. I almost didn’t do anything and they put me on track to invoice and receive my payments. I can fully recommend them.”

Ronaldo, Umbrella PAYE contractor

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Michelle Hughes, WS Contractors Ltd

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Frank Mcfarlane, Gemini Security Services Ltd

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