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  3. What is an Umbrella Company?
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  3. What is an Umbrella Company?

What is an Umbrella Company?

An umbrella company is a business that contractors and freelancers can work through for assignments, as an alternative to setting up a limited company.


For contractors, an umbrella company is generally the main alternative to setting up a limited company. The contractor becomes an employee of the umbrella company and acts as an intermediary between the worker and their end hirer (which could be directly with your end hirer company or a recruitment agency).

In this respect it is ideal for any contractor captured by IR35. Because you are legally a permanent employee of the umbrella company, your tax is processed according to PAYE along with National Insurance. This gives you the freedom to take on fixed and short term assignments with different end hirers. The principal function of an umbrella company is to organise and simplify billing and payment for contract work.

Updated on 17th February 2020

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