What is an umbrella company?

Last Updated on 1 December 2025

An umbrella company (or just ‘umbrella’ for short) is how a client might bring you in to work, usually on short term projects, but avoid having to put your on their payroll.  

Instead you will be on the payroll of another company (the umbrella company) which will treat you as their employee. They put you on the umbrella’s payroll, use the PAYE system and take off income tax and NI, student loan repayment and pension contributions just as any other employer does.

Effectively the umbrella is just a company that does payroll (PAYE) and nothing else.  The umbrella is your employer. The organisation giving you the work is not your employer, even though you’re providing the work for them.

The current government sees umbrellas as a bit of a wild west and they’re legislating to rein them in.

You can read more here:

https://www.gov.uk/government/collections/umbrella-companies

The problem with umbrella companies is that they will not only take off your tax and NI as an employee, they also take off a fee for doing so.  This means less money filters through to you.

Umbrellas sometimes claim to be a way of avoiding tax liabilities. This is a bit of a red flag so there’s more on gov.uk to help you spot the good and the bad.

If you’ve been advised to consider working through an umbrella read this first:

https://www.gov.uk/guidance/working-through-an-umbrella-company

Posted on 16 October 2025