Contractor Questions: Why am I paying both employee and employer NI contributions through my umbrella company?

Question: I am working for an agency and the company they use for paying me are deducting the employers national insurance as well as my own national insurance every week is this the correct procedure.

Answer: An umbrella company is an employer and, as with any other UK employer, we have a legal obligation to pay employer’s national insurance contributions to HMRC. Basically a compliant umbrella company should employ you under an over-arching contract of employment and would then enter into a business to business contract with the recruitment agency or client. They should then raise an invoice for the hours/days that you worked which would be sent to the agency/client with whom they are contracted. Payment would be made to the umbrella company to the value of that invoice and they would then pay the employer’s national insurance contribution from the amount received and they would also retain their margin. The balance is your salary which would be subject to deductions for income tax and employee’s national insurance. This model is the same for all umbrella companies as they all have to comply with the regulations which surround PAYE.

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