What is an umbrella company?

An umbrella company is a UK employment intermediary. It employs a temporary worker, pays them through PAYE and invoices the recruitment agency or end client for the hours worked. It does not find the work.

Is an umbrella company the same as IR35?

No. IR35 is the name for the off-payroll working rules, which apply to workers using their own intermediary such as a limited company. HMRC says those rules are unlikely to apply to someone employed by an umbrella company.

What changed for umbrella companies in April 2026?

Section 61Y of ITEPA 2003, inserted by the Finance Act 2026, makes each relevant party in the supply chain jointly and severally liable with the umbrella company for PAYE it owes. HMRC’s policy paper gives 6 April 2026 as the start date and names agencies, or the end client where there is no agency.

Is a worker paid through an umbrella my employee?

No. The umbrella company is the worker’s employer for PAYE purposes. Your commercial contract is normally with the agency, but your tax exposure can still arise through the supply chain under the 2026 rules.

Does an umbrella company give a worker employment rights?

HMRC says an umbrella company employee has the same employment rights as other employees, including a written contract, minimum wage, workplace pension enrolment where eligible and paid holiday.

How is an umbrella different from an employer of record?

An umbrella is a UK arrangement inside the agency supply chain for temporary assignments. An employer of record is a general model for employing workers abroad on a client’s behalf. Both employ the worker, but their contexts and contract chains differ.

Umbrella Company

An umbrella company is a UK employment intermediary that becomes the employer of a temporary worker, pays the worker through PAYE, and invoices the recruitment agency (or, in some cases, the end client) for the hours worked. HMRC describes umbrella companies as employment intermediaries that employ workers on behalf of agencies and end clients. The umbrella does not find the work; the agency does. For a US, UK or Australian business hiring in the UK, the term matters because it changes who runs payroll and who carries tax risk.

How an umbrella company works

HMRC’s guidance for workers sets out the usual chain. A client needs temporary workers and asks a recruitment agency. Before offering an assignment, the agency may ask the worker to be employed by one of its preferred umbrella companies, or the worker may be able to choose their own. The agency must give the worker a key information document that names the umbrella company, the minimum assignment rate paid to it, what it will deduct and the worker’s minimum gross pay. The agency then contracts with the umbrella company, which is responsible for employing the worker, paying wages in line with that document and invoicing the agency for time worked.

Money flows in the opposite direction to the paperwork. The worker sends a timesheet to the agency, the agency charges the client, the agency pays the umbrella company the agreed assignment rate, and the umbrella company pays the worker as employer. HMRC notes that the umbrella must make the deductions the law requires from gross pay, and that the worker’s payslip should show them.

Employment rights through an umbrella

HMRC states that an umbrella company employee has the same employment rights as other employees. That includes a written employment contract, at least the National Minimum Wage or National Living Wage, automatic enrolment into a workplace pension where eligible, and paid holiday. Holiday pay can be calculated as “rolled up” holiday pay added to each payslip, or using a 52-week reference period paid when leave is taken.

Umbrella companies and IR35

IR35, formally the off-payroll working rules, applies when a worker supplies services through their own intermediary, usually a personal service company (PSC), and would have been an employee if engaged directly. HMRC’s off-payroll guidance says the rules are unlikely to apply to someone employed by an umbrella company, because the worker is already an employee paid under PAYE. The two models are therefore alternatives: a contractor with their own limited company is in IR35 territory, while an umbrella employee is on a payroll. For the wider picture see the guide to UK IR35 and umbrella PAYE rules.

The April 2026 change: joint and several liability

HMRC’s policy paper on the umbrella company market, published on 26 November 2025, says the measure takes effect from 6 April 2026. It makes recruitment agencies responsible for accounting for PAYE and Class 1 National Insurance on payments to workers supplied through umbrella companies. Where there is no agency, the responsibility falls to the end client. The paper describes legislation inserting a new Chapter 11 into Part 2 of the Income Tax (Earnings and Pensions) Act 2003 that makes agencies or end clients jointly and severally liable for amounts that must be accounted for under PAYE, with an equivalent power to be created for National Insurance.

The enacted provision is section 61Y of ITEPA 2003, headed “Umbrella companies: joint and several liability”, inserted by section 24 of the Finance Act 2026. It provides that each relevant party is, along with the umbrella company, jointly and severally liable to pay any amount payable under the PAYE provisions by the umbrella company in relation to a qualifying umbrella company payment. HMRC’s policy paper gives 6 April 2026 as the start date.

In practice, HMRC may pursue the agency first for payroll taxes that a non-compliant umbrella fails to pay over; the end client is liable if it contracts directly with an umbrella company. HMRC’s stated aims are to protect workers from unexpected tax bills, protect the Exchequer and keep the market fair for compliant firms.

What a US client should know

Contract with the right party. Your contract is normally with the agency or a service provider, not with the individual and not with the umbrella company.
Expect rate quotes to include umbrella costs. The assignment rate paid to the umbrella is higher than the worker’s take-home pay because of employer costs and deductions.
A direct contract with an umbrella company can make you the party HMRC pursues if PAYE is not paid over.
Do not treat an umbrella as a way to avoid classification questions. Whether the worker is genuinely engaged on a temporary assignment is a separate question from who processes the payroll.