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Why does My Income Tax Vary from Week to Week?

One of the things contractors have to get used to is that their pay, and therefore their income tax, varies according to how much they work. 

Why does my income tax vary from week to week?

You’ve earned the same amount of money in two separate weeks and you’ve paid different amounts of tax on them. The natural conclusion is that something has gone wrong. Your tax is based on your earnings, which are the same, so surely the amount of tax you pay should be the same … right? 

We can see why you’d think that. In conventional employment, when you can expect to be paid every week or month for years at a time, that is exactly how it works. In the longer term, it works like this for umbrella employees too. Over the course of a tax year, the only factors affecting the amount of tax you pay are the amount you earn and the value of expenses you claim in that year.

However, in the short term your tax is also affected by whether you were paid last week or month, and the week or month before that. Because tax is calculated using the figures for the tax year to date each time you’re paid, the flexible way in which contractors work can mean your tax varies, even between payments of the same value. Again, it should be noted that these variations are short term and will “work themselves out” by the end of the tax year. So, when might you see variations?

If you’re paid the same amount every week/month for the whole tax year, you’ll pay the same amount of tax every week/month. Whenever this isn’t the case, your tax will vary. Most people understand that they’ll pay more tax if they earn more, but the most confusing variations happen when you’re not paid every week/month. If you start work part way through the tax year, or you have periods during the tax year when you don’t get paid, this will affect the amount of tax you pay in each payment. For more information, see our article on this subject. [Read the full article on Orange Genie Latest News]

Topics: umbrella companies

Top 5 Questions from Umbrella Employees

At Orange Genie Umbrella we’re always keen to provide the information our employees actually need. Based on our inbound call data, here are the top 5 questions we were asked in March 2018, along with the best answers our experts could devise.

Topics: umbrella companies

The Importance Of Professional Review Of Your IR35 Status

IR35 reviews, what are they good for? Why do you need one? Well, the first thing to realise is the importance of getting your IR35 status right.

Why do you need to use the correct IR35 status?

Topics: umbrella companies

The Risks of Tax Avoidance for Contractors

We understand why contractors are tempted by tax avoidance schemes. IR35 chaos in the public sector has caused many contractors to lose an extra chunk of their pay to the tax man, and it’s understandable that many of them have searched for a solution. In any case, who wants to pay more tax than they need to? If there’s a legitimate way to shrink your tax bill, why wouldn’t you use it?

And that’s the point. If there was a legitimate way for you to take home 80-90% of your contract rate, we’d all be using it. Orange Genie, as responsible experts with your interests at heart, would be leading you towards it with a big neon sign.

Unfortunately, there isn’t. And yet, if you’ve researched contractor pay online we can almost guarantee that you’ve come across companies who say there is. Those people are lying to you. They’re hoping to profit from putting you at risk.

With the contracting industry holding its collective breath for news of private sector IR35 reform, it’s more important than ever to know you’re getting accurate, trustworthy advice. Read More>>

Topics: umbrella companies

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