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Umbrella Companies. What are they?

Umbrella Companies, What is an umbrella company, Umbrella company UK

Umbrella Companies really came to the forefront following the 2007 Budget which introduced the legislation known as “Tackling Managed Service Companies.” Prior to this legislation, what was known as the “single person” company was in existence but following this legislation, when done correctly, the new Umbrella Company is a far more efficient structure.

In essence, the Contractor becomes an employee of an Umbrella Company, whereby the Contractor will pay full PAYE tax and make national insurance contributions. However the Contractor will also be able to reclaim a number of accepted business expenses and will also have immediate access to contract funds. This option is far more preferable than working through a recruitment agency, even if the agency itself utilises the services of an Umbrella Company in the UK.

We are in the ideal position to recommend exactly which UK Umbrella Company solution will satisfy your personal circumstances. The three additional options may be outlined as follows: –


This Contract Umbrella involves the contractor effectively working as an employed person of an individual Umbrella Company. Whilst the contractor will identify and agree terms for an individual contract, this contract will be made by the end client and the Umbrella Company. As an employee of the Umbrella Company, the contractor may receive “daily” wages after payment of PAYE and National Insurance but is also able to claim approved HMRC expenses and other employee statutory benefits, such as statutory sick, holiday and maternity pay. However you will be able to claim up to 90% of the contract value net of PAYE and national insurance contributions. All PAYE calculations, IR35 compliance obligations, applicable Professional Insurance commitments are undertaken by the Umbrella Company, thus releasing the contractor from any worries concerning legislation.

Self Employed

First of all to be considered as Self Employed, you need to ensure that you meet all the HMRC regulations as set down for the Self Employed. At this stage, we will recommend one of a number of companies who are able to provide your contractor services to end clients. This service is normally available to those contractors earning in excess of £150 per day and who wish to retain self-employed status. This solution will also enable the provision of an Employee Benefit Trust as well as all Professional Insurances and complete freedom from the worries of AWR and MSC.

Limited Company

Of all the solutions offered by various Umbrella Companies, this is the most applicable for those who require company Director Status; those looking to offset legitimate business expenses and, after payment of tax, have early access to funds up to 82% of the contract value. You will establish a Ltd Company where you become both director and shareholder. Concurrently we will recommend several companies, where you will register as a self-employed contractor and who in turn would provide your contracted services to end clients, namely your Limited company. Each time you work as a self-employed contractor, you will receive a small fee. The balance of the contract fee will be deposited into a named discretionary trust from which you will be able to apply for commercial loans on a weekly basis. However, as the end client is your own limited company (who in turn has contracted directly to the main client for your services,) a small proportion of the contract fee is left with your company and so you will be able to draw down a director’s salary and dividend from this amount. We would point out however, that it is most unusual to use a contractor umbrella company when selecting this solution.

Read more about Umbrella Company UK.

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