How Do Taxes Work As An Agency Worker – The Basics

Working as an agency worker as a TA or supply teacher can have you wondering just how your taxes are calculated. Unlike full-time employment, you may not know when you will be working and do not have guaranteed shifts. This makes understanding tax calculations harder. So, how do taxes work as an agency worker? And, do you need to restrict how many agencies you work with to make it more manageable?

How Is Tax Calculated In The UK?

Tax in the UK is calculated differently from other countries, making it even more confusing if you work as a supply teacher in the UK after moving from overseas! To understand how tax and national insurance contributions will affect you, you need to understand tax bands.

You will fall into a tax band depending on your yearly earnings. It does not matter how many employers you have; instead, it focuses on the total annual income from ALL employees.

This means that if you earn a self-employed income of £12,000 a year, but then complete agency work and earn £9,000 a year, you will be paying tax for the total of £21,000.

Those who earn less than £12,750 per year (overall) do not have to make any tax or national insurance contributions. This is considered as your ‘tax allowance’.

If you earn over £12,750 per year, you will be taxed 20% on every pound above this amount. You will also pay national insurance contributions at a rate of 8% for everything over this amount. If you earn over £50,270 per year, you will be taxed at a rate of 40%, and over £125,140 it is 45%. National insurance payments go up once you earn over £50,270 per year, at this rate you will pay 8% on all income between £242 to £967 per week, Everything earned over £967 per week is then a further 2% on top of this.

Complicated? Yeah, we know. So, let’s break it down for you!

Example of Teacher Tax

Let’s say we have a teacher named Bob. Bob works with 3 supply agencies as an M2 teacher, and worked all but 5 days of the school year in this tax year! (Go, Bob!). This means that at a standard rate, Bob is earning £21.64 per hour! He works most of the school year between the agencies and makes up around 190 full days of work! Over the year Bob earns a total of £29,500 between the three agencies.

As his employers, the agencies Bob works for need to deduct tax and national insurance as needed. Bob will pay into his pension out of this too. As Bob has made £29,500, he falls into the tax bracket of 20%. So, after £12,750, Bob’s income is taxed at 20%. This means £16,750 of his income is taxed at 20%, so he pays £3,350 tax this year. Bob also pays his national insurance, which is 8% of everything over £12,750. Bob pays £1,340 in National Insurance. This leaves Bob with £24,810 to pay into his pension and then to enjoy as his earnings.

But, Bob doesn’t need to worry about doing any of this math himself! Bob isn’t self-employed, he works for agencies who use a PAYE payroll system! This means that Bob’s employers do all the maths for him! Bob’s taxes and national insurance are automatically deducted from his pay before he receives his earnings.

Does It Matter How Many Jobs I Have?

No! Whether you work full-time, part-time, for one agency, for 7 agencies, or 30 agencies, it doesn’t matter! All that matters with tax and national insurance is your overall earnings for the year!

Be aware that it is possible that you might get taxed at 20% in the short term if you have more than one employer, meaning you may be paying more tax than you need to. However, you can always inform your employer and you can then split your tax codes to avoid this happening. Even if you do pay more tax than you should, you will get a tax rebate after the tax year and will recieve any overpaid tax back to yourself from HMRC.

How Can I Figure Out How Much Tax I Should Be Paying?

Figuring out how taxes work for you and what you should be paying requires a little bit of maths. However, you should be able to see how much you are paying on your payslips as long as your employer runs a PAYE payroll. If you are worried about how much tax you are paying, you can figure it out yourself. As an agency worker, you won’t be salaried so you will need to wait for the end of the tax year to work this out.

Once you reach the end of the tax year (April 1st each year), add up your earnings from each employment. To do this you can use a P60 for each employer, which will show your total earnings for the tax year. If you do this, ensure that you are using the total, before any deductions.

DIY Tax Calculating: How To Guide

With this total from all employers, you can then take this amount and take away £12,750 from it. This is because you get £12,750 tax free income. So, if your income was £24,400, you would take £12,750 away from it , which would leave you with £11,650 subject to tax. Now, you can input that £11,650 into a percentage calculator.

Input your tax bracket of 20% into the calculator, as well as your taxed income.

With your information put in, click to calculate:

This means that the total Tax payable is £2,330 for that tax year. You can then do the same calculation for national insurance at 8%. After this add your tax payable to your NI payable, and this will show your primary deductions from your annual pay. If you pay into a pension as well, you can add the percentage you pay into your pension as well.

If you are concerned about the amount of tax you are paying, this can be a good way to cross reference how much you pay with what your payslips show.

Remember, if your tax is incorrect, you will recieve a tax rebate at the end of the tax year.

Other Things You May See On Your Payslip

Most Teaching Agencies like BEST will use a PAYE system. However, many will use an Umbrella Company to run their PAYE system. At BEST we do this ourselves, but staff who are employeed by Umbrella-PAYE companies will see something else on their payslip. It is likely that staff employed by an agency that managed their PAYE system via an umbrella company will also see ‘margin’ on their payslip.

A margin is just an admin fee for the umbrella company.

So on a payslip run by a company like so you will likely see deductions such as:

• Employee Pension.
• Employee NI
• Tax
• Margins (Admin Fee)

You may also pay student loan repayments depending on your loan plan and your total earnings.

At BEST we run our own PAYE payroll, and we provide a complete payroll breakdown on your payslip, so you know what you are getting every month. Working with BEST, you also do not need to worry about Admin fees either!