It’s important to ensure that your umbrella company fees are proportionate to the service you receive. You therefore need to know which umbrella company fees should be deducted to give you your umbrella take-home pay. This is your ultimate guide to your take-home pay and what umbrella companies charge and how their fees are structured.
Table of Contents
As an umbrella company contractor, you’ll tend to either be paid weekly or monthly depending on your contract. Each pay period, you will receive a reconciliation sheet and a payslip which includes all your take-home pay details, including any deductions and your net pay for the specified period.
Image: Umbrella company fees explained: how contractor pay is broken down.
Company Deductions. How much do Umbrella companies charge?
First, the umbrella company will deduct fees from the contracted rate received from your end client or agency. There are up to four categories of deductions taken from the contracted rate. These are the employer margin (the umbrella company ‘fee’), employment costs, umbrella company expenses and, finally, umbrella company opt-in fees (any optional umbrella company fees you have decided to opt into).
Umbrella Company Margin
Your umbrella company will retain an employer margin which covers the services provided by the umbrella company. These services include administrative tasks such as payroll, tax deductions, and compliance with employment laws. The employer margin is a fixed fee subject to certain criteria.
For example, Danby is a contractor, working as a sleep optimisation consultant for a local millionaire. As his role is very exhausting, Danbro umbrella taking care of his payroll takes the pressure off. So, if Danby earns £950 per week (£190 per day), for his sleep expertise, and his umbrella company’s margin is £28 per week, this will be deducted from his rate on his weekly pay to leave £922. Please note that this deduction happens before tax and employee national insurance contributions are deducted from contractor’s earnings.
£950 Contracted Rate -£28 Umbrella Company Margin ______ =£922 |
For Danbro Umbrella, our nominal margin is carefully structured to cover the following:
- Providing you with high quality support and customer service.
- Supporting contributions towards your statutory sick pay. Your umbrella company should handle this as HMRC does not reimburse it.
- Enhancing our service delivery by investing in our systems, training programmes, cyber security measures, and the latest technology.
- Maintaining additional benefits, such as discounted Financial Planning services.
We aim to ensure that these elements are in place to deliver the best possible experience for you.
At Danbro Umbrella, we offer a competitive margin to contractors. Therefore, you’re likely to be getting an excellent deal without compromising on the quality. To find out more about Danbro Umbrella or our Umbrella company fees, get in touch.
Employment Costs
Both the Employer’s National insurance & Apprenticeship Levy are paid directly to HMRC.
Employer's National Insurance
Employer’s National Insurance is a legal obligation for employers. It is paid to HMRC along with other deductions. We deduct this from the contracted rate. The rate you’re paid is uplifted to account for deductions like tax and Employer’s NI. This ensures your take-home pay is similar to that of a permanent employee. Your payslip will clearly show all deductions, including Employer’s NI, ensuring transparency with no hidden fees.
This deduction is paid by the employer on their employee’s earnings. In the context of umbrella, this will be deducted from the contracted rate by the umbrella company (your employer).
Employer National Insurance is calculated based on the Class 1 (secondary) threshold. The Class 1 threshold for the current tax year (2025/2026) is £96 weekly and £417 monthly. If the gross taxable income is above £96 per week (or £417 per month), then 15% of the earnings above £96 (£417 monthly) will be paid as employer national insurance contributions.
For example, if Danby earns £950 per week as a Feng Shui Consultant, then 15% will be deducted from his gross taxable pay for the period once the secondary threshold has been removed. |
To find more information on Employer’s National Insurance Rates, look at the gov.uk website.
Apprenticeship Levy
The apprenticeship levy was a tax introduced by the UK government in 2017. The purpose of the apprenticeship levy is to provide a contribution to a national fund which provides apprenticeships from approved suppliers all around the country.
If the employer’s annual earnings (the umbrella company) exceed £3 million, then 0.5% of the gross taxable pay will be deducted for the apprenticeship levy. The Levy is paid through PAYE, alongside Income Tax and National Insurance, and appears as a company deduction. Each employer receives a £15,000 annual allowance to offset against their levy payment. For more information on The Apprenticeship Levy, visit our Apprenticeship Levy Blog.
For example, Danby’s umbrella company, “Danby Umbrella,” collectively earns more than 3 million a year. So, If Danby earns £950 per week as a Feng Shui Consultant, then 0.5%, for the apprenticeship levy, will be deducted from his gross taxable pay for the period. Danbys gross taxable pay for this week equates to £793.24. 0.5% of £793.24= £3.97 Apprenticeship levy
£950 Contractor Rate -£28 Umbrella Company Margin -£104.59 Employer National Insurance -£3.97 Apprenticeship Levy ______ =£813.44 |
Umbrella Company Expenses
If you work under an umbrella company, you may be eligible to claim some work-related expenses. As a contractor, you may incur expenses that your agency has agreed to reimburse. You can claim chargeable expenses through your umbrella company. They can be off-set against tax and national insurance. However, your umbrella company must confirm that your agency is reimbursing you for the expenses. Off-set against tax means that the amount of money you owe in tax is reduced by subtracting certain costs or credits. This helps lower your overall tax bill.
For Danbro Umbrella contractors, there is an online claim form on the portal. When filling in this form, make sure you include:
- Supporting VAT receipts
- Detailed reasons for expenses incurred
- Completed expenses agreement for each assignment
For expense claims not reimbursed by your agency, you may be able to claim tax relief. You can do this by submitting a claim through HMRC via a P87 or self-assessment. Pease note that if you do wish to make a claim, you must retain all receipts as evidence of these expenses.
For the full requirements and instructions for claiming expenses, see our guide. Or alternatively, just ask our support team.
Pension Schemes
By law, employers offer a workplace pension scheme. As an umbrella company employee, you are eligible for the Danbro Group SIPP Pension Scheme:
- You are 65 years of age and under.
- Earn more than £10,000 per annum.
- You are not already be a member of a “qualifying workplace pension scheme” of that employer.
The Employer’s contribution towards your pension will be deducted at 3% of the contracted rate and 5% will be deducted later from the taxable gross pay as the employee’s contribution (your contribution). Please note that there is a cap for pension contributions. The maximum for qualifying weekly earnings is £967. Therefore, pension contributions are calculated by taking the gross taxable amount and removing the lower limit set by the pension regulator, in order to ensure that pension contributions remain within the qualifying threshold.
If Danby has stayed opted into the pension scheme that he was automatically enrolled in by Danbro Umbrella, then his breakdown would look like the following: £950 Contractor Rate -£28 Umbrella Company Margin -£104.59 Employer National Insurance -£3.97 Apprenticeship Levy -£20.20 Employer Pension Contributions ______ =£793.24 |
Holiday Pay
As an umbrella employee, you will be eligible for 28 days of holiday pay per year, including bank holidays. Holiday pay is a taxable deduction of 12.07%. With Danbro Umbrella, your holiday pay is calculated within each payment and can either be advanced to you every time you get paid, or saved / accrued for you to take out at a later date. The exact amount will always be clearly displayed on your weekly/monthly payslip. Holiday pay is taxable.
For example, 12.07% of Danby’s gross pay is taken as holiday pay. Therefore, £85.43 is deducted along with the previous deductions from the contracted rate, which leaves a gross pay as £707.81. £950 Contractor Rate -£28 Umbrella Company Margin -£104.59 Employer National Insurance -£3.97 Apprenticeship Levy -£20.20 Employer Pension Contributions -£85.43 Holiday Pay ______ =£707.81 |
You can find out everything you need to know about holiday pay in our blog.
Statutory Deductions
Now your employer fees have been deducted, statutory deductions will be applied to your gross pay. In other terms, these are all the statutory deductions which apply to an employee’s pay.
Umbrella Tax Bands & Rates
Like all UK employees, you will have tax deducted from your gross pay. Your income tax is calculated according to your tax code. Tax codes are issued by HMRC and the personal allowance may vary. Please see the GOV.UK website for more information.
Income Tax rates are applied progressively. This means only the income within each band is taxed at that band’s rate, not your entire income.
Danbro Umbrella ensures that your tax calculations are always accurate and compliant with HMRC regulations.
Danby’s gross taxable income after the umbrella company have deducted employer fees is £793.24 (including the holiday pay) If Danby’s tax code is 1257L, then Danby’s tax deduction would be £110.27. This leaves £682.97
£950 Contractor Rate -£28 Umbrella Company Margin -£104.59 Employer National Insurance -£3.97 Apprenticeship Levy -£20.20 Employer Pension Contributions -£85.43 Holiday Pay
= £707.81 Gross Income +£85.43 Holiday Paid
=£793.24 Total Gross Taxable pay -£110.27 Income Tax ______ £682.97 |
Employee National Insurance Contributions
You will also see a deduction for National Insurance. National Insurance contributions are taken from an employee’s wage through PAYE. NICs fund state benefits and services. These include the NHS, state pensions, benefits, and other welfare programmes. For more information on National Insurance contributions, take a look at the Government website.
Employee’s National Insurance contributions now need to be deducted from the gross pay along with the tax.
As well as tax, National Insurance contributions must be deducted from Danby’s gross pay of £793.24.
£793.24 Total Gross Taxable pay |
Employee Pension Contributions
As part of the workplace pension scheme you, as the contractor, will contribute 5% towards your pension pot. This is deducted from your gross pay. Please note that once again Pension Regulator Thresholds are in place to calculate pension contributions. Therefore, there is a maximum for qualifying weekly earnings of £967. Employee’s Pension contributions are also calculated by taking the gross taxable amount and removing the lower limit set by the pension regulator, in order to ensure that pension contributions remain within the qualifying threshold.
Danby’s pension contributions come to £26.93. Danby is left with £611.94.
£950 Contractor Rate -£28 Umbrella Company Margin -£104.59 Employer National Insurance -£3.97 Apprenticeship Levy -£20.20 Employer Pension Contributions -£85.43 Holiday Pay
= £707.81 Gross Income +£85.43 Holiday Paid
=£793.24 Total Gross Taxable pay -£110.27 Income Tax -£44.10 Employee National Insurance Contributions -£26.93 Employee Pension Contributions ______ £611.94 |
If you still have questions about how pension contributions work, you can find more information here.
Other Deductions
Student Loan Repayments
If you have an outstanding student loan, this will also be deducted out of your pay. Repayments are contingent on your earnings and the type of loan you have (i.e. Plan 1, Plan 2, Plan 4, Postgraduate Loan, etc).
You start repaying your loan once your income exceeds a certain threshold. The thresholds vary by loan type. Furthermore, repayments are a fixed percentage of your income above the threshold.
For the 2026/2027 tax year, student loan repayments start when you earn:
- Plan 1: Above £26,900 per year / £517 per week / £2,241.67 per month.
- Plan 2: Above £29,385 per year / £565.10 per week / £2,448.75 per month.
- Plan 4: Above £33,795 per year / £649.90 per week / £2,816.25 per month.
- Postgraduate Loan: Above £21,000 per year / £403.85 per week / £1,750 per month.
You will pay back 9% of your earnings above these amounts for Plans 1, 2 & 4. For the Postgraduate Loan, it’s 6%.
For example, Danby went through vigorous studying at Lancaster University to be qualified as a sleep optimisation consultant. Therefore, he’s still paying off his Plan 1 student loan. A 9% deduction will be taken from his gross pay £793.24, minus the weekly threshold of £517. 9% is £24, please note that student loan is rounded down to the closest pound. This leaves Danby’s net pay as £587.94.
£950 Contractor Rate
-£28 Umbrella Company Margin
-£104.59 Employer National Insurance
-£3.97 Apprenticeship Levy
-£20.20 Employer Pension Contributions
-£85.43 Holiday Pay
= £707.81 Gross Income
+£85.43 Holiday Paid
=£793.24 Total Gross Taxable pay
-£110.27 Income Tax
-£44.10 Employee National Insurance Contributions
-£26.93 Employee Pension Contributions
£611.94
-£24 Student Loan Repayment
Total Net earnings £587.94
As an umbrella contractor, it is important to understand the deductions that need to be made to calculate your take-home pay. It’s equally important to make sure that your umbrella company are clear and transparent with the deductions they make.
If you are interested in finding out more information about our umbrella company fees, feel free to contact us. You can also find Danbro Umbrella’s Pay and Payslip Guide here.
If you’re interested in finding out your take-home pay with Danbro Umbrella – why not use our detailed calculator?
