Working through an Umbrella company does not nessarily mean you pay less tax than non-contractors. You are still liable to pay full National Insurance and PAYE income tax.

On top of this, as a contractor working under an umbrella company, you are also liable to pay your employers National Insurance. Non-Contractors have their Employers National Insurance costs absorbed by their employer. Umbrella Companies are unable to do this as the only revenue generated from contractors is though their fee’s. As a contractor, your rate of pay should reflect this contribution and should therefore be higher than if you were a non-contractor.

Employer’s National Insurance is currently 12.8% (09/10 tax year) of all earnings over £105 per week. This is a cost the contactor is expected to meet however, this cost is mitigated by the increased rate that the agency will pay you for working through an Umbrella Company.