Forced Inside IR35 and paid through an umbrella? Your take-home is far below the advertised assignment rate — and this shows exactly why. The umbrella deducts its margin, then Employer NIC (15% above £5,000) and the 0.5% Apprenticeship Levy from your rate <em>before</em> your own PAYE pay is even set. Enter your rate to see the full waterfall for 2026/27.
7 min read·Updated Thu Aug 20 2026 00:00:00 GMT+0000 (Coordinated Universal Time)·🇬🇧 UK
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Key takeaways
Key takeaways · 2026/27
The umbrella pays Employer NIC (15% above £5,000) and the 0.5% Apprenticeship Levy out of your assignment rate — before your own gross PAYE pay is set. This is the 'dual taxation' effect.
It also keeps a margin (typically £15–£30/week). Only what's left becomes your gross, on which you then pay Income Tax and employee NI.
This is legal and standard for Inside-IR35 work — the umbrella is your employer, so the employer costs sit with it, funded from the rate.
Employment Allowance does not apply to single-worker umbrella arrangements, so the full Employer NIC is charged.
How it works
The "dual taxation" of Inside IR35
When a contract is caught by IR35 and you're paid through an umbrella, the umbrella becomes your employer. The assignment rate the agency quotes is an all-in figure meant to cover the cost of employing you — so before you're paid a penny of taxable salary, the umbrella takes its margin and pays the employer's National Insurance and the Apprenticeship Levy out of that rate. Only what remains becomes your gross PAYE pay, on which you then pay Income Tax and employee NI. That's why contractors describe it as being taxed twice over.
The waterfall, step by step
Assignment rate — annualised from your day, hour or week rate.
− Umbrella margin — the umbrella's fee, typically £15–£30 a week.
− Employer NIC — 15% on pay above the £5,000 secondary threshold for 2026/27.
− Apprenticeship Levy — 0.5% of the pay bill.
= Your gross PAYE pay — the figure your own tax is based on.
− Income Tax, employee NI, pension, student loan — leaving your take-home.
Employment Allowance doesn't help here. It can wipe out up to £10,500 of Employer NIC for many businesses, but it's specifically not available to single-director/single-worker umbrella arrangements — so the full 15% is charged on your rate.
What you can actually change
The employer costs are fixed by law, but two levers move your net: shopping for a lower umbrella margin, and making pension contributions by salary sacrifice, which cuts your tax and NI (and sometimes the Employer NIC too). If the numbers still don't work, compare the contract against a permanent role with the day-rate to salary calculator before you decide.
Employer NIC secondary threshold and rate for 2026/27, and the 0.5% Apprenticeship Levy. This models a compliant Inside-IR35 umbrella; it is not tax advice. Verify your payslip deductions and take professional advice on IR35 status.
Frequently Asked Questions
Why is my umbrella take-home so low?
Because you're effectively paying two lots of National Insurance's worth of employer cost. Under an umbrella, the assignment rate the agency quotes is the total the umbrella receives — and out of that it must pay Employer NIC (15% on pay above £5,000), the 0.5% Apprenticeship Levy and its own margin before it sets your gross PAYE pay. Then you pay Income Tax and employee NI on that reduced gross. So the headline rate and your bank balance look worlds apart even though nothing improper is happening.
What is the Apprenticeship Levy?
It's a 0.5% charge on an employer's pay bill that funds apprenticeships. Umbrella companies are employers, so they're liable for it — and, like Employer NIC, they fund it from your assignment rate. On a typical contract it's a small slice (0.5% of your gross), but it's part of why the assignment rate doesn't all reach you.
Does the umbrella pay employer NI from my rate?
Yes. This is the crux of Inside-IR35 umbrella working. The umbrella is your legal employer, so it owes Employer National Insurance — but the assignment rate is designed to be an 'all-in' figure that covers those employment costs. In practice that means the Employer NIC comes out of the rate before your gross is calculated, so economically you bear it. A permanent employee never sees this because their salary is quoted after the employer has already absorbed its NIC.
Is this legal?
Yes, when done correctly. A compliant umbrella deducts Employer NIC, the Apprenticeship Levy and a transparent margin, then runs proper PAYE on your gross — and your payslip should itemise all of it. What's not legal is a scheme that inflates 'expenses', pays part of your money as a non-taxable 'loan', or hides the deductions. If your take-home looks too good, or the payslip doesn't add up, treat it as a warning sign.
How can I get a better net — should I go Outside IR35?
If the engagement genuinely meets the Outside-IR35 tests you may be able to work through your own limited company, where the employer costs don't apply in the same way and you can take dividends — often improving net pay. But IR35 status is determined by the working relationship, not your preference, and getting it wrong is costly. This tool models the Inside-IR35 umbrella reality; compare against a permanent salary using the day-rate converter linked below, and take advice before changing your set-up.
Does the pension option save me anything?
Umbrella pension contributions are usually made by salary sacrifice, which reduces both your Income Tax and your National Insurance — and can also reduce the Employer NIC the umbrella pays, sometimes passed back to you. Entering a sacrifice percentage here reduces your taxable gross accordingly. It's one of the few genuine levers to improve an Inside-IR35 net position.
Disclaimer: Figures are estimates based on 2026/27 rates and rules and may change. Verify with HMRC or a qualified adviser before making financial decisions.