Working through an umbrella company means you are an employee, so PAYE handles your tax and National Insurance automatically. The catch is that umbrella pay works differently from a standard salary. This guide walks through the process using 2026-27 rates.
DASA Umbrella is accredited by FCSA, Professional Passport, and SafeRec. Those are three of the main compliance standards for umbrella companies in the UK. Get started with a compliant umbrella company that is FCSA, Professional Passport, and SafeRec accredited.
How does umbrella pay work?
Your agency or client pays an assignment rate to your umbrella company. That rate is not your gross salary. It is the total amount the umbrella has to cover employer costs, its margin, your holiday pay, and your tax and NIC. The money left after those deductions becomes your take-home pay. For a full breakdown, read our guide to how umbrella take-home pay is calculated.
Your client or agency agrees an assignment rate with your umbrella. Think of it as a pot. The umbrella takes its costs and margin out first. What remains becomes your gross pay, and that amount then goes through PAYE just like any other employee’s pay.
Holiday pay also comes out of the same pot. With rolled-up pay, it appears on each payslip as a separate line. With accrued pay, it is set aside and paid when you take leave.
What gets deducted from your pay?
Before PAYE starts, the umbrella takes out:
- Employer National Insurance contributions (15% in 2026-27)
- Apprenticeship levy (0.5%)
- The umbrella’s margin (usually a fixed weekly or monthly fee)
- Holiday pay (either rolled-up or accrued)
These deductions come out of the assignment rate. What is left becomes your gross pay. Income tax and employee NIC then come off that amount.
Income tax rates 2026-27
The personal allowance is £12,570. You pay 20% tax on earnings between £12,571 and £50,270. Between £50,271 and £125,140, you pay 40%. Above £125,140, you pay 45%. These are the standard UK rates for the 2026-27 tax year.
Most contractors on £200 to £500 per day fall into basic or higher rate tax. If your earnings go above £100,000, your personal allowance tapers. It reduces by £1 for every £2 earned above £100,000.
Your umbrella applies these rates through payroll in real time. Your tax code tells the umbrella how much personal allowance to give you. Check your payslip to make sure your code is correct.
| Band | Income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
National Insurance rates 2026-27
Employee NIC is 8% on earnings between £12,570 and £50,270 per year. Above £50,270, it drops to 2%. These are the employee rates you see deducted on your payslip. Employer NIC is separate and comes out before your gross pay is set. For the full picture on NIC, read our guide to National Insurance for umbrella contractors.
Employee NIC starts at the Primary Threshold, which is £12,570 per year. That is the same as the personal allowance. You do not pay NIC on earnings up to that point.
The 2% rate above £50,270 means higher earners pay proportionally less NIC than mid-range earners. NIC does not reduce your personal allowance.
How does employer NIC affect your take-home?
Employer NIC is 15% of your gross pay above £5,000 per year. The umbrella pays this, but it comes out of your assignment rate before gross pay is calculated. So employer NIC directly reduces what is available for your take-home.
This is the part of umbrella pay that surprises most contractors. You do not pay employer NIC directly. The umbrella pays it. But the umbrella uses your assignment rate to fund it.
Here is the simple version. Say your assignment rate generates £400 of gross pay potential. Employer NIC at 15% is roughly £52. That leaves £348 for gross pay. Tax and employee NIC then come off the £348.
The rate went up from 13.8% to 15% in April 2025. That increase directly reduced take-home for most contractors. It was not a DASA change. It was a government change that applies to every umbrella in the UK.
Holiday pay: how it works
You are entitled to 5.6 weeks of paid holiday per year as an umbrella worker. Umbrella companies handle this in one of two ways. Rolled-up holiday pay adds 12.07% to each payslip. Accrued holiday pay sets the money aside and pays it when you take time off. Both are legal, but the method changes your payslip layout.
Since the Harpur Trust ruling in 2022, irregular-hours workers must use a 52-week average. The 12.07% flat rate no longer applies to accrued pay. Umbrella companies cannot use the flat 12.07% rate for accrued holiday anymore.
From 2027, the Fair Work Agency (FWA) will have full enforcement powers over holiday pay. It launched on 7 April 2026. This means HMRC-style investigations into holiday pay underpayments will become possible.
Make sure you know which method your umbrella uses. Ask them directly if it is not clear on your payslip. Read more on rolled-up versus accrued holiday pay.
Pension and salary sacrifice
You are automatically enrolled into a workplace pension as an umbrella worker. The minimum employer contribution is 3% and the minimum employee contribution is 5%. You can increase your pension contribution through salary sacrifice, which reduces your taxable pay and saves you income tax and NIC.
Salary sacrifice works by redirecting part of your gross pay into your pension before tax. That means you pay tax on a lower figure. You save income tax at your marginal rate and also save employee NIC.
There is a limit though. Your umbrella must keep your assignment rate above the National Minimum Wage after sacrifice. The NLW rate is £12.71 per hour in 2026-27. If you try to sacrifice too much, the umbrella has to cap it.
Read our salary sacrifice and your pension for the full breakdown.
What does your umbrella margin cover?
The umbrella margin is the fee your umbrella keeps. It covers payroll processing, employer compliance obligations, insurance, and the cost of operating as your employer. DASA Umbrella charges a fixed margin. You will see it as a deduction on every payslip.
A compliant umbrella’s margin is transparent. You should see exactly what you are being charged. If it is buried or unclear, that is a warning sign.
DASA holds FCSA, Professional Passport and SafeRec accreditation. That means three independent bodies audit our compliance processes. Read our guide to what makes an umbrella company compliant.
The margin is a fixed fee, not a percentage of your earnings. That keeps it simple and predictable.
How do you check your take-home pay?
Use DASA’s umbrella pay calculator to get a quick estimate based on your day rate or hourly rate. It uses current 2026-27 rates for tax, NIC, and employer contributions. You can adjust for pension contributions and holiday pay method too.
Knowing your assignment rate is the key input. Get that from your agency or contract. Then put it into the umbrella pay calculator to see your estimated take-home.
Your actual payslip may vary slightly. Your tax code, pension contributions, and holiday pay timing all affect the final figure. The calculator gives you a solid starting point.
If your actual pay differs significantly from the estimate, check your payslip line by line. Our payslip breakdown for umbrella contractors walks you through every deduction.
