Spotlight on Umbrella Companies

While there is no legal definition, ‘Umbrella Companies’ is a term used to describe Employment Intermediaries that employ temporary workers who go on to work for different agencies and/or end clients (ultimate recipient of the services). Umbrella companies will often contract with recruitment agencies, who then source the work opportunities.

'Employment intermediaries' rules apply to staff and employment agencies:

• Agency workers are generally subject to PAYE and NICs on their earnings.

• The rules for determining employment status changed in 2014: workers who are supplied through an agency and are subject to (or to a right of) supervision, direction or control by any person will automatically be treated as employees.

• Special reporting instructions for employment intermediaries (agencies) who supply self-employed workers apply from April 2015. These make it difficult for agencies and other employment intermediaries to pay workers gross i.e. treating workers as being self-employed in their own right. Returns are to be completed from 6 April 2015 for each quarter ending 6 July, 6 October, 6 January and 6 April and late filing penalties apply.

In June 2025, HMRC released Spotlight 71: 'Warning for agency workers and contractors who are moved between umbrella companies'. This Spotlight highlights signs that agency workers and contractors should be aware of and that may indicate that the umbrella company they are engaged with is operating a tax avoidance scheme. 

HMRC highlight the areas where taxpayers should be extra vigilant if they are engaged with an umbrella company. Spotlight 71 can be viewed here.