Umbrella Company Deductions Explained

Every deduction — from employer NI to the apprenticeship levy — explained in plain English for the 2026/27 tax year.

Last updated: April 2026

Working through an umbrella company means your pay passes through more deductions than a standard PAYE employee. Understanding each one helps you verify your payslip is correct and make informed decisions about your contracting structure.

Employer's National Insurance

15% of earnings above £5,000Deducted from: Assignment Rate

This is the most significant deduction most contractors encounter. As your employer, the umbrella company must pay Class 1 secondary National Insurance contributions. The rate is 15% on all earnings above the secondary threshold of £5,000/year. On a £120,000 annual assignment rate, this alone is £17,250.

Example:(£120,000 − £5,000) × 15% = £17,250

Apprenticeship Levy

0.5% of assignment rateDeducted from: Assignment Rate

Introduced in April 2017, the apprenticeship levy is charged at 0.5% of an employer's annual pay bill above £3 million. Since umbrella companies pool many workers' pay, their total pay bill far exceeds this threshold. Like employer NI, this is effectively passed on to workers via reduced gross pay.

Example:£120,000 × 0.5% = £600

Umbrella Company Margin

Fixed fee, typically £15–£40/weekDeducted from: Assignment Rate

The umbrella company's fee for their services: payroll processing, employer compliance, insurance (public liability, professional indemnity), and administration. This is usually charged as a fixed weekly or monthly amount rather than a percentage. It's one of the key differentiators when comparing umbrella companies.

Example:£25/week × 48 weeks = £1,200/year

Income Tax (PAYE)

20% basic, 40% higher, 45% additionalDeducted from: Gross Salary

Calculated on gross salary (after employer deductions) minus the personal allowance (£12,570). The basic rate (20%) applies up to £50,270, the higher rate (40%) applies from £50,271–£125,140, and the additional rate (45%) applies above £125,140. Scottish taxpayers pay different rates.

Example:20% × (£50,270 − £12,570) + 40% × (£100,950 − £50,270) ≈ £27,824

Employee National Insurance (Class 1)

8% main rate, 2% upper rateDeducted from: Gross Salary

Employee NI is charged at 8% on earnings between the primary threshold (£12,570/year) and the upper earnings limit (£50,270/year). Above £50,270, the rate falls to 2%. This is calculated on the gross salary after any pension contributions.

Example:8% × (£50,270 − £12,570) + 2% × (£100,950 − £50,270) ≈ £4,150

What's Left: Your Net Take-Home Pay

After all five deductions above, what remains is your net take-home pay. On a £500/day rate with typical inputs, this is approximately £290–£310/day. Use our calculator to see your exact figure with your specific day rate, margin, and pension settings.

Calculate My Take-Home

Deduction Quick Reference

Employer's National Insurance15% of earnings above £5

Apprenticeship Levy0.5% of assignment rate

Umbrella Company MarginFixed fee

Income Tax (PAYE)20% basic

Employee National Insurance (Class 1)8% main rate