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How is my Net Pay Calculated?

How do you Calculate Net Pay?

The aim of everyone at MSL Forza is to ensure that you receive the maximum net take home pay allowable under HMRC regulations. Your earnings will be taxed under the PAYE tax system, which of course is also used to tax permanent employees. However, permanent employees are unable to claim legitimate business expenses against their earnings. This is where being paid by an umbrella payroll company has its advantages. You will also have to pay employee’s and employer’s National Insurance contributions.

As you can see, the advantage of being paid through an umbrella payroll company like MSL Forza is that we can deduct the figure for Employer’s NIC, our fees and your legitimate business expenses from your gross pay. We then deduct your free pay according to the tax code issued by HMRC to arrive at your gross taxable pay. If you were a permanent employee, the only deduction would be your free pay. We must stress however that you can only claim business expenses that have actually been incurred, wholly, exclusively and necessarily in the performance of your duties. You cannot claim for something that you have not paid out for, despite what some other umbrella payroll companies may claim. At MSL Forza LTD we pride ourselves on being fully-compliant with HMRC legislation; it’s just not worth trying to do otherwise.

So, MSL Forza Ltd pays the tax and NICs to HMRC on your behalf, leaving you nothing to worry about.

Your tax code is issued by HMRC and reflects the tax allowances due against your pay. The current Emergency Tax Code for an individual for 2011/12 is 747L which means you can earns £7470 tax-free per annum. For all earnings over and above the allowance given by your own personal tax code will then be taxed using the rates shown below:

PAYE tax rates


PAYE tax rates, thresholds and codes

PAYE tax rates, thresholds and codes Figures to use 2011-12
PAYE tax threshold £144 per week
£623 per month
£7,475 per year
Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £35,000
Higher tax rate 40% on annual earnings from £35,001 to £150,000
Additional tax rate 50% on annual earnings above £150,000
Emergency tax code 747L


Here is a guide to the Class 1 NIC for Employer and Employee contributions:

Class 1 NICs: thresholds

Class 1 NICs thresholds Figures to use 2011-12
Lower earnings limit (LEL) £102 per week
£422 per month
£5,304 per year
Secondary Threshold (ST) £136 per week
£589 per month
£7,072 per year
Primary Threshold (PT) £139 per week
£602 per month
£7,225 per year
Upper accrual point (UAP) £770 per week
£3,337 per month
£40,040 per year
Upper earnings limit (UEL) £817 per week
£3,540 per month
£42,475 per year

Class 1 NICs: rates for employee (primary) contributions

NICs deductions should not be made on earnings below the Lower Earnings Limit (LEL).


NICs category letter

Earnings at or above LEL up to and including ST Earnings above ST up to and including PT Earnings above the PT up to and including UAP Earnings above UAP up to and including UEL Balance of earnings above UEL NICs rebate on earnings above LEL, up to and including ST NICs rebate on earnings above ST, up to and including PT
A 0% 0% 12% 12% 2% N/A N/A
B 0% 0% 5.85% 5.85% 2% N/A N/A
C NIL NIL NIL NIL NIL N/A N/A
D NIL 0% 10.4% 12% 2% 1.60% 1.60%

Class 1 NICs: rates for employer (secondary) contributions

NICs deductions should not be made on earnings below the Lower Earnings Limit (LEL).


NICs category letter

Earnings at or above LEL up to and including ST Earnings above ST up to and including PT Earnings above the PT up to and including UAP Earnings above UAP up to and including UEL Balance of earnings above UEL NICs rebate on earnings above LEL, up to and including ST
A 0% 13.80% 13.80% 13.80% 13.80% N/A
B 0% 13.80% 13.80% 13.80% 13.80% N/A
C 0% 13.80% 13.80% 13.80% 13.80% N/A
D 0% 10.10% 10.10% 13.80% 13.80% 3.70%