What is Umbrella Company? UK Definition 2026/27
Quick Answer
A company that employs contractors and handles their payroll and tax.
Definition of Umbrella Company
An umbrella company employs contractors and manages their payroll, tax, and NI. The contractor invoices through the umbrella, which deducts tax and NI before paying them as an employee. Often used for inside IR35 contracts or short-term work where running a limited company is not practical.
Umbrella Company — Key Facts for 2026/27
| Typical margin | £20-£30/week |
| Employment status | Employee of umbrella |
| Tax treatment | PAYE |
| Holiday pay | Usually included |
How Umbrella Company Works — Example
- 1Day rate from client: £400
- 2Umbrella margin: £25
- 3Employer NI (15%): ~£52
- 4Apprenticeship levy: ~£2
- 5Gross pay: ~£321
- 6Employee tax/NI: ~£95
- 7Take home: ~£226
How Umbrella Company Affects Your Tax
Umbrella companies are simpler than running a limited company but less tax-efficient. They are often necessary for inside IR35 contracts. Choose a compliant umbrella - some engage in tax avoidance schemes that HMRC challenges.
Official HMRC Guidance on Umbrella Company
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Working through an umbrella companyFrequently Asked Questions about Umbrella Company
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.