Umbrella Company
A UK limited company that employs contractors on behalf of recruitment agencies — handling payroll, tax, NI, and employment rights.
An umbrella company is a specialist employment business that employs contractors and manages their payroll on behalf of recruitment agencies and end clients. The contractor becomes an employee of the umbrella, which handles PAYE income tax, employee and employer NI, auto-enrolment pension, and holiday pay.
The typical payment flow is: end client pays agency → agency pays umbrella (the assignment rate) → umbrella deducts employer NI, apprenticeship levy, and its margin → sets gross salary → deducts income tax and employee NI → pays net salary to the contractor.
Umbrella companies are used primarily by contractors working inside IR35, contractors who prefer simplicity over tax efficiency, and sectors (such as NHS and public sector) where agencies mandate umbrella use.
FCSA accreditation is the industry-standard compliance mark. Always verify accreditation before signing with an umbrella company.