Use HMRC’s new tool to identify any umbrella pay problems

If you are employed by an umbrella company, it can sometimes be difficult to understand if your pay is being dealt with correctly – and it can cause problems for your tax if the umbrella company is not meeting its responsibilities. HMRC have launched a new online tool to help you check if your pay and deductions are correct.

How does HMRC’s tool work?

You can find HMRC’s tool on GOV.UK, under the heading ‘Work out pay from an umbrella company’.

The tool is based on the fact that umbrella companies should be calculating pay and deductions in more or less the same way. The steps an umbrella company should take are as follows:

• The umbrella company receives the assignment rate for the worker, that is, the amount paid by the agency or end client to the umbrella company.
• The umbrella company pays its employment costs in respect of the worker (employers’ National Insurance, apprenticeship levy, employers’ pension contribution etc) and retains its margin or fee. Because these employment costs are set by law, usually the only deduction that would vary is the margin or fee.
• The umbrella company then pays the balance to the worker, making any deductions as required, for example Pay As You Earn tax, employee pension contributions or student loan deductions.  

As such, HMRC’s tool asks you for the assignment rate. It asks some other questions about your circumstances, applies some assumptions and then produces an estimate of what your gross and net pay should be.

If you want to compare the result to what actually happened with your gross and net pay for a particular pay period, then you can do this by entering the information from your payslip, as well as the assignment rate. The tool will highlight whether there are any discrepancies between the figures and give you some hints and tips as to what might have caused them.

What are the benefits of the tool?

Umbrella company pay can be confusing – even if the umbrella company is fully compliant and takes their responsibilities very seriously. This tool can help you understand how your pay works when you are employed in this way.

Some umbrella companies operate using non-compliant and/or problematic arrangements. HMRC’s tool can help you spot possible problem areas. For example:

• It allows you to ‘follow the money’, giving you visibility over how the umbrella company should be dealing with your pay, including holiday pay. There is information on the rules for holiday pay on GOV.UK.
• It allows you to see how much should be deducted from the assignment rate for employment costs to spot ‘skimming’.
• It provides you with valuable information about how your net pay should be calculated that will help you detect things like disguised remuneration.

You can find out more about all these problem areas and more, on our website.

What if the tool says there is a discrepancy?

The tool is based on lots of assumptions – there might be a perfectly good explanation if a discrepancy is highlighted.

  You should not act (or refrain from acting!) based on the results of the tool alone, without doing further research or getting specific advice.

With this in mind, on the results page, HMRC set out what you should do with the results and some other useful checks that you might want to do on your umbrella company. This includes things like:

• asking your umbrella company about any discrepancies.
• using your Personal Tax Account or HMRC’s app to cross check the pay and tax details that your umbrella company has reported to HMRC. 
• checking your bank account to see if you are receiving more than one payment each payday.

If, having followed all the steps set out on the results page, you have concerns about your umbrella company, you may want to read our website material. This covers what to do if you find yourself in a non-compliant umbrella.

If you need professional advice, we recommend that you contact a tax adviser or if you are on a low income, one of the tax charities. See our getting help page for more details.

Possible issues to look out for in 2025/26

The 2024 Autumn Budget introduced significant changes that will impact umbrella companies in the 2025/26 tax year. These include increases of employer National Insurance contributions (NICs) and the National Minimum Wage rates.

From 6 April 2025, the rate of employer NICs will increase by 1.2% to 15%. At the same time, the threshold for employer NICs is being reduced from £9,100 annually to £5,000. The National Minimum Wage (NMW) rate for workers of 21 and over is going up from £11.44 to £12.21 an hour – an increase of 6.7%. While paying these things is an employer responsibility, because of the way umbrella companies work, the increase in these employer costs may affect you as well.

For instance, unless your umbrella company receives an increase in money from the agency or end client to pay the higher employer costs, it is likely that the increase in employer NIC will have to come out of the existing assignment rate. This means the umbrella company will have less money to carve your gross pay out of. Although the umbrella may be able to flex your gross pay up and down because of the type of employment contract they give you (provided they don’t breach the NMW), they shouldn’t be making unexplained deductions!

  If you notice a drop in your gross pay come 2025/26, you could use HMRC’s new tool to check what has caused it. The tool can only deal with the 2024/25 year at the moment, but we understand from HMRC that it will be updated for the new tax year at the relevant time. 

Similarly, if an umbrella company doesn’t renegotiate the overall assignment rate with your agency or end client to account for the NMW rate they could find themselves under some real financial pressure. Remember that pay elements like holiday pay will also be based on the higher NMW rate. This situation is not ideal for workers as it could leave you exposed to bad practices like the Elective Deduction Model. Again, HMRC’s new tool could help you here as it will highlight when there may be issues around NMW and holiday pay.

Final thoughts

The tool is being launched as a ‘public beta’ version. This means that HMRC want people to try the new tool out and provide feedback, so they can refine it based on real-life experiences. There is a form within the tool for you to share your thoughts and possible improvements.