Employment through an Umbrella Company

For the last 20 years, the gig economy has really taken off in the UK. Especially in the last decade, the UK labour market has seen firms and individuals adopt a wider range of ways of working.

Temporary work or contract work has become more popular, initially seen in the IT and project management fields; allowing an individual to negotiate a rate, pick and choose roles and more flexibility in working.

Initially, the majority of these would have been paid directly as sole traders or to their limited company (with the added benefit of offsetting expenses and reducing tax). The introduction of IR35 changed things.

What is IR35?

Simply put, it’s about ‘disguised employment’.

If an individual looks like an employee, then the government requires that they be paid with the deduction of PAYE tax and NIC as an employee. Prior to 2017, individuals in the Public Sector used to be able to be paid directly to their limited company and they were responsible for their own payment of taxes.

After April 2017, the legislation was brought in and so many doctors, nurses and social workers were then informed that they could no longer be paid directly to their limited company but that they would need to be paid via an umbrella company who would deduct tax and NI and pay them as an employee.

From April 2021, this extended to the Private Sector also, and it was clarified that the end client that a contractor works for would be responsible for determining whether they are ‘inside’ or ‘outside’ of IR35; do they look like an employee or not. This makes it more likely that a person will be classed as ‘inside’ as the consequences for getting it wrong lies with them and it is costly!

There are a variety of factors involved in making the determination, but a simple example is below:

An IT specialist may have a project to complete, but as to when they start and finish etc is up to them as long as the work is completed. They could, if they wanted, work through the night and get a job finished. They are their own boss and could be classed as outside of IR35.

A nurse, however, will be told what time to start, when to take breaks and when to finish. They also have to answer to a governing body, so they are under the ‘Supervision, Direction and Control’ of another person or company. Even if they are an agency worker/contractor, they are following the same rules as an employee so would fall inside IR35. To find out more, click here.

What is an umbrella company?

Basically agency workers or contractors take on a temporary role for an ‘End Client’ and funds are often paid to a recruitment agency.

Rather than the agency pay them directly to their personal bank account or to their Limited Company, the agency may pay an Umbrella Company who acts as the employer for the individual.

Umbrella companies are employment businesses whose sole purpose is to employ and pay people (as opposed to ‘employment businesses’ (in the sense of a business regulated by the Employment Agency Standards Inspectorate (EAS) which finds and supplies temporary work-seekers to hirers – we know them as Agencies).

Umbrella companies do not source work for people. This is usually done by a recruitment agency or Employment Business as known by the BEIS. There is no statutory definition of an umbrella company. HMRC’s definition of an umbrella company is: ‘A UK limited company which acts as an employer to a number of individuals, meeting PAYE and other requirements, where operating legitimately. It signs contracts to provide the individual’s labour to engagers, either directly or through another intermediary such as a recruitment agency.’  Working through an umbrella company – GOV.UK (www.gov.uk)

The EAS’s definition15 is: ‘A payroll company, which might charge or deduct a fee from a work-seeker’s payment that has been passed to them by an employment business to process the work-seekers’ wages earned through the agency. In some cases, the workseeker will become an employee of the umbrella company.’ As there is no statutory definition of an umbrella company, the term is often used very widely to describe a variety of different arrangements and activities.  Here are a couple of examples of the contractual and payment operations as not everyone knows what an umbrella company is!

Working with an umbrella 1

Legal agreements such as Contracts for Service or UK Supplier Agreements should be in place between the End Client and Umbrella Company if a direct relationship, otherwise the Agency/Employment Business and the Umbrella company, and the Umbrella will have a Contract of Employment with the Individual:

Who is responsible for what?

The umbrella operates as a stand-alone business, it does not operate or function on behalf of clients or agencies (employment businesses). It is not a payroll bureau as some mistakenly think. Umbrella companies do not source the work for employee, but the umbrella company provides a service to the recruitment agencies by supplying its employees to fill the temporary roles offered by the agencies.

Benefits for Agencies: Less employers’ costs and responsibility (furlough was a prime example of this!) The umbrella company operates at arms-length from the Agency and End client businesses, NOT their employees, as they undertake all the responsibilities required of an employer with regards to holiday pay, SSP and many more.

Who uses umbrella companies?

Initially, they tended to cater for white collar professionals who opted to be employed through an umbrella company rather than operating as sole traders or through a limited company of their own. These individuals typically work on a succession of assignments, perhaps in IT, finance, banking or engineering where their skills are highly valued and are required for specialist projects.  

Over time, as the government has strengthened their commitment to a ‘flexible’ labour market and as temporary and flexible working has increased, the umbrella company market has widened. Umbrella companies now proliferate in all areas of the temporary labour market – from locum nurses and supply teachers in the public sector, to young, lower paid ‘temps’ who, for example, have not been successful at finding long term work, or who are between jobs. Such people often find their work through agencies and these people are called ‘agency workers’, ‘contractors’ and ‘candidates’ within the industry.

Joining an umbrella company

Many umbrella companies have online application systems, although some will still send out a form to complete. As with any employment, the umbrella company will need to perform checks on the individual and will require a proof of ID and address, and evidence of right to work in the UK. Some will have to upload these documents to a secure portal, others require them sending by email, and yet others ask to video chat with the person to verify their identity.

Within the industry, this process is usually referred to as ‘onboarding’ and there should be a process in place for the umbrella company when a new person joins.

Following the application form and documentation check, a contract of employment should be issued.

Contract of Employment

The contract of employment for umbrella companies is slightly different to that of a permanent employment contract in that it is an overarching contract; it will cover multiple roles and so the rate of pay, location of work etc is going to change and this should be stated in additional documentation.

The contract itself may state that the worker will be paid a base rate along with a commission or discretionary bonus.

This is because under the contract, they may have multiple assignments for various agencies yet still be employed by the same umbrella company for years, and the rate will change from role to role.

Within the contract of employment there may be an Appendix relating to holiday pay; whether it will be accrued or advanced with each payment. A further Appendix may be in place with regards to Conduct Regulations – whether the individual chooses to opt out. (there should be a process in place to notify the agency/end client of this) Also, Working Time Regulations opt out may be a separate document or another appendix to the COE.

The employee of the umbrella company should still have the same rights as any other employee including statutory sick pay, holiday pay, maternity pay etc and these should be mentioned in the contract of employment.

Pay if not received funds from the agency

Another grey area, but it depends on the contractual terms. (this has not been challenged or raised with BEIS to date)

If the COE with the umbrella worker states that they will be paid when funds are received, the umbrella is fine. If the umbrella is using a standard employment agreement stating £XX per hour/day, then they don’t have much to stand on. However, where an agency does not pay an umbrella and a contract is in place, the umbrella can report them to BEIS who will chase and aim to recover the funds.

Holiday Pay

All employees, including those of umbrella companies, have the right to a minimum of 28 days’ paid leave including bank holidays or 20 days plus bank holidays.

Because of problems inherent in very short-term agency work when it comes to calculating holiday leave and pay, workers used to get extra pay on top of their hourly rate instead of being given paid holiday leave (a system known as ‘rolled up’ holiday pay). Strictly this is incorrect, as the law says that it should be paid out at the time annual leave is taken, but many workers prefer the ’rolled up’ or ‘advanced’ system. According to the BEIS this is ‘unlawful, but not illegal’ as long as it is clearly stated in the umbrella documentation (contract of employment, holiday policy, employee handbook).

As a general rule, annual leave entitlement equates to 12.07% of time worked. Many umbrella workers have the choice to be paid for this entitlement in real time – known as ‘rolled-up’ holiday pay or ‘advanced’ holiday pay and this should be clearly detailed in the contract of employment. This would result in dependent contractors receiving a 12.07% premium on their pay. The Good Work Plan states ‘Additional safeguards would have to be built in to ensure individuals did not simply work 52 weeks a year as a result, but we believe giving individuals this kind of choice will suit many working in casual arrangements and in the on-demand economy.’

The BEIS have confirmed that rolled up or accrued holiday pay is ‘not unlawful’, but they do understand that with temporary workers and many jumping from one agency or umbrella to another, it is difficult to monitor or regulate holidays taken. Therefore, they have stated that where the worker remains on an accrued basis, it should be detailed clearly the amount of holiday pay available to them and clearly stated on the payslip or pay statement.

The contract of employment may state how the umbrella company handles holiday pay, but it would be recommendable to have a document signed by the worker confirming that they are aware of this set up and that they acknowledge responsibility to take time off. Umbrellas or agencies can also take the initiative to notify workers when onboarding and remind them from time to time to take time off as everyone should, by law, take holidays for their well-being.

Also, if there is any holiday pay held at the point a worker leaves, this should be processed and paid as part of their final payment. (There should be a process for this in place!)

The rolled-up/advanced holiday pay paid each week/month should be clearly documented on the payslip or pay statement as an individual item and clearly stating that it is holiday pay. Employment contracts must also contain clauses specific to holiday entitlement.

See below example:

The holiday pay is clearly stated on the right-hand side of the payslip, but at the bottom the total pay includes this amount.

Regardless of whether a contractor opts for their holiday pay entitlement to be held back or advanced to them, the umbrella company as the employer has the responsibility to check that the individual is taking time off and not working 52 weeks. The provision for holidays is for the wellbeing of the employees, and the umbrella company should have procedures in place to check in with their contractors regarding this. It is not an easy scenario as many contractors will work for the duration of a role and then take a break – they may not necessarily continue with the same umbrella company or they may request a P45 at the end of their role, so this poses a challenge for the umbrella company.

However, where it is evident that an individual has continued with the umbrella company for a long period of time, there should be evidence of communication between the umbrella company and the individual reminding them to take some time off.

Sick Pay

Due to the fact that the umbrella company retains a small margin or fee for their service, it is common that they will offer just Statutory Sick Pay (SSP) in line with government guidelines.

There should be a company policy or mention of this in a handbook for employees of the umbrella company; details of how to claim SSP and what they are entitled to along with an internal recording process and evidence in the payroll department of these payments being made to the contractor.

Other Employee benefits – SMP, SPP, Parental Bereavement Pay etc

Employees of umbrella companies have other statutory rights which should be made clear to them along with the criteria for eligibility in line with government guidelines.


Under the Pensions Act 2008, every employer in the UK must put staff into a workplace pension scheme and contribute towards it. This is called automatic enrolment and also applies to employees of umbrella companies. (https://www.thepensionsregulator.gov.uk )

Some companies do ‘defer’ the enrolment for up to 3 months from a new employee’s joining a company, but this should also be made clear to the employee and there should be a process in place for communicating with the worker upon joining, at opt in time and in the event that they choose to opt out.

Pension deductions should be detailed on the payslips. Many umbrella companies use NEST – the government pension provider and there will be evidence on their system that payments are up to date.

As umbrella companies have employer costs, these also should be visible on a payslip.

See example:

The Employer costs are deducted from the total amount received from the agency/end client; this includes the umbrella fee/margin, Employer’s NI, Apprenticeship Levy (if applicable) and the Employer’s Pension calculation.

The pension calculation for the employer is highlighted in red and for the employee in yellow.

There should be processes in place to notify a worker how auto enrolment will work, when opt in is to start and how to opt out.

Also if a worker chooses to opt out after contributions have been made, there should be a process in place to process any refund including communication with the worker.

Conduct Regulations

This is the Conduct of Employment Agencies and Employment Business Regulations 2003. The Employment Agencies Act is a piece of legislation created to set a minimum standard of conduct for recruitment agencies in the UK. There is much more information on this subject, but to summarize, the Conduct Regulations cover:

  • Information required from/given to the client and provided by/to the contractor;
  • The contractual documentation which must be in place;
  • When a contractor must be paid; and
  • When transfer fees can be charged to the client.

The Regulations permit individuals to opt-out of the Regulations if they are:

  • Working through a limited company; and
  • Not working with people under the age of 18 or vulnerable adults.

Many umbrella companies and agencies automatically opt their workers out of the Conduct Regs and this may be found in the contract of employment or documentation between the agency and the umbrella, but it is recommended (not yet required by law) that an agency or umbrella company has this information provided clearly to the worker and that they have a choice to opt out or not, and the ability to change their minds!

Should any documentation be signed to confirm a decision to opt out, the umbrella must notify the agency of this as it falls on the agency to keep the end client informed. To learn, click here.

Working Time Regulations

Until October 1998, employee working hours and paid/unpaid leave allocation were subjects largely dictated by their employer. In 1998 Working Time Regulations (WTR) was introduced as a new statutory framework that would influence all contractual working relationships.

The 48 Hour Working Week

The 48-hour working week was introduced to support the health and safety of workers by setting a maximum requirement of working hours deemed appropriate/safe per week. Workers can agree individually or through a workplace agreement to exceed this limit if they wish, but an individual cannot be mandated to work more than 48 hours per week (on average over a 17 week period). This can include some variations of ‘on-call’ duties.

However, an employee of an umbrella company is entitled to ‘Opt-Out’ of this by ticking the statement or appendix on the contract of employment or a separate document provided. Please note, for a few specific job roles, opting out is not permitted, but an individual would be made aware of this when negotiating the contract with the agency or end client.

Night Work

Where night work is concerned, the directive states that workers must not conduct more than an average of 8 hours in a 24-hour period. The average is usually calculated over a 17 week period also. Night workers have the right to receive a free health assessment, this may not need to be a full medical examination, as long as the individual doing the screening has medical training. If the worker is advised that they are suffering from health problems relating to their shift pattern they should be advised to consider a different role. If their current employer can they must transfer the worker to day work where possible. 

The Right to A Rest – what are workers entitled to?
  • Workers are entitled to 11 consecutive hours rest every 24 hours while in employment.
  • Workers are entitled to one 24 hour period of uninterrupted rest in any period of 7 days or 48 hours in 14 days.
  • Workers are entitled to a 20-minute break if working a 6-hour shift. Whether this break is paid or unpaid is dependent on each contract and/or employer. 
Annual Leave

Workers have the right to 5.6 weeks or 28 days of paid leave per year. The number of entitled holiday days corresponds with the number of days in the week that the individual normally works. The regulations specify a holiday year, and any leave not taken in that year is forfeited. There is no ‘carry-over’ right unless approved by the employer. 

WTR states that the notice period appropriate to take annual leave should be equivalent to twice the length of the requested holiday period – of course, this is merely a guideline, employers have the right to use their own discretion. A worker must provide some advanced notice or the employer can refuse to accept the annual leave request. Once annual leave is approved, the worker should receive their normal weekly/daily pay for the allocated duration. 

Annual Leave during Sick Leave

The right to annual leave continues to accrue during sick leave and a worker who is on sick leave during a period of scheduled annual leave must be permitted to take the leave at a later date, and if necessary, in the following year. A worker is entitled to choose not to take leave whilst off sick, and cannot be forced to accept a payment in lieu.

Excluded classes of worker

The Working Time Regulations 1998 were amended with effect from 1 August 2003 concerning the classes of the workers who had previously been excluded from protection under the Regulations.

Workers engaged in sea transport, sea fishing, or inland waterway and lake transport have limited protection under the Regulations. They have protection under other regulations that guaranteed 4 weeks of paid leave, limits on working hours, and the right to rest days. 

In addition to the excluded sectors above, several sectors are partially excluded from the provisions of the regulations. These include:

  • Those employed in the Police, Armed Forces and Civil Protection where those duties conflict with the Regulations are excluded from all provisions except those specifically dealing with young workers.
  • Mobile workers in the Civil Aviation Sector are excluded from all provisions except those dealing specifically with young workers. However, these workers do have protection under the Civil Aviation (Working Time) Regulations 2004 which guarantees 4 weeks of paid leave, rest days, and limits on flying hours and working hours.
  • Mobile workers in Road Transport are excluded from all provisions except the right to paid annual leave and the right of night workers to be offered free health assessments. However, rights concerning limits on hours and rest days are provided in the Road Transport (Working Time) Regulations 2005.
  • Trainee Doctors now fall within the full scope of the Regulations, with transitional arrangements in place to limit maximum weekly working time. The present weekly limit is 56 hours and this is in force until 31 July 2009.
  • Domestic Staff is covered by the provisions on a daily and weekly rest, rest breaks, and annual leave.
  • Workers whose working time is not measured or pre-determined, or is fixed by the workers themselves, are only covered by the provisions on the right to paid annual leave.

AWR day 1 rights and week 12 comparative pay

AWR stands for Agency Workers Regulations (2010) and is a legislation designed specifically to protect agency workers from any discrimination in favour of permanent co-workers in the same role at the end client. Issues addressed by this legislation include pay rate, access to holidays and working time conditions.

Agency Worker Rights

Imagine this scenario: one permanent employee is sitting beside an agency worker; both carrying out the same work but treated differently, with one having access to certain company facilities and benefits and the other not. Is that fair? Obviously not.

Thanks to this legislation, from day one of your assignment you can use eating and social areas, the canteen, parking spaces, changing rooms and any other facilities that full time employees have access to.

As with permanent employees, an agency worker is also entitled to obtain information of any internal vacancies and can apply should they wish to do so.

Qualifying Period’

Following 12 weeks in the same role with the same client, agency workers are able to access equal pay and basic working rights, such as annual leave, rest breaks, time off for ante-natal appointments and many other benefits.

However, it should be noted that the following is not included within AWR:

– Sick pay
– Maternity Pay
– Pensions

– Redundancy payments
– Benefits in kind
– Loyalty bonuses

Does it apply to Umbrella Employees?

AWR does apply to Umbrella workers as they provide services to fulfil temporary assignments with various end clients. An umbrella company allows workers to take temporary assignments while working for one employer, the umbrella company. They receive full statutory employment rights as well as protection from the Agency Workers Regulations.

Simply put, as the umbrella company, they enter into a contract with the recruitment agency (or end client) to supply a service. The rate the recruitment agency pays goes to the umbrella company and is often referred to as a charge out rate. The charge out rate takes into account that the umbrella company will be responsible for employing the person who performs the service and as such will be responsible for paying employers’ costs such as employer’s national insurance as well as retaining a margin for their own business.

Where the AWR helps is to ensure that once the employer’s expenses have been deducted, the wage and expenses then processed for salary to the temporary worker by the Umbrella Company are the same or more than the wage being earned by a comparable permanent colleague working in the same role at the end client. This means that the employer’s expenses and umbrella company margin are taken into account when performing AWR checks to ensure the worker is paid in line with AWR requirements.

As the umbrella has no legal right to communicate directly with the End Client and can’t do checks on Day 1 rights etc, the AGENCY should have processes in place to collect information from the End Client and pass to the umbrella. If the umbrella makes an effort to reach out to the agency before week 12 with regards to the pay comparability, even if there is no reply from the agency, the umbrella can demonstrate that they have done all they can.

Some umbrellas send out standard emails at weeks 4, 8 and 12, but one would suffice when approaching week 12, and any communication with the worker to make them aware of their rights is beneficial.


Additional required documentation for umbrella/PEO workers:

Contract and role details from the Agency

The agency or end client should send something to the umbrella company to establish an agreement between the companies for sending money over. This can be a UK Supplier agreement or an Umbrella Agreement, or some other contract to define the relationship between the two entities and to specify that it is the umbrella company that is responsible for employing the individual.

The agency or end client should also provide details of the specific role: start date, end date, rate of pay, location and any other relevant information. This is to ensure that there is evidence for why the company sends money to the umbrella company, along with remittances or invoices specifying the individual’s name, week or month worked and the amount to be paid.


Providing a ‘Key information document’ for agency workers: guidance for employment businesses – GOV.UK (www.gov.uk)

From 6 April 2020, agencies are required to provide new agency workers with a document known as a ‘key information document’ (KID) prior to signing them up for an assignment. There are also templates to assist agencies with the process, including the case where agency workers are paid via an umbrella company (it is likely the umbrella company will have to provide information to the agency in order that it can be completed).

Legislation is very clear that the responsibility for providing this to workers lies with the Agency. BEIS states ‘If an umbrella company is kind enough to produce all of the information to the agency, there can be no liability on the umbrella if the agency does not fulfil their requirements.’

Having a process in place to send out the KID template and ask an agency for it to be sent to them and the worker is good practice.

With regards to changes to KIDs (as required by PP) – this only applies to NON STATUTORY changes such as a change in fee/margin or if the company reaches the threshold for Apprenticeship Levy.

Pension is a Statutory requirement, so can be included on the KID as standard as the employer will be enrolling them. The change in NI calculations in April 2022 DO NOT warrant a new KID as these are Statutory deductions, but many umbrellas will update their templates for the new tax year.

With regards to other deductions, this would depend on the agency. For example, in Hospitality a company may have deductions for uniform and may more commonly see student loans with their employees, so they would include these factors on the KID.
In healthcare, uniform, training and also DBS checks may be included, even though it may be a one-off deduction it is best to declare it to the worker.

Payroll through an umbrella company

The money will go from the End Client – Agency – Umbrella – Employee

It isn’t against the law for agencies to pass workers to umbrella companies, but when they do, they must make sure they hand over the correct amount of money. This includes the gross pay rate advertised to the worker (‘the agency rate’) plus all of the umbrella company’s costs. These two things together make the ‘umbrella company rate’ (the rate paid by the agency to the umbrella company).

Even though having an umbrella company in the supply chain means that the agency has to share the margin between what is paid by the end client and what is paid to the worker with the umbrella company, the umbrella’s economies of scale often mean is it still more cost effective for the agency to do this than doing the HR and payroll functions in-house.


Payslips will vary depending on the software used, but these points should be clearly visible to the worker:

  • Funds received from the agency/End Client
  • Employer Deductions: NIERS, Employers pension (Apprenticeship levy if eligible)
  • Gross salary and holiday pay split
  • Employee Tax and NI calculations (pension, student loan, other deductions)
  • Net Pay


Some payslips will be very basic, if so, there should be a pay statement, or breakdown with the above details.

The umbrella fee or margin is not normally detailed on a payslip as this is a non-vatable cost, but in the company’s documentation, website and correspondence, it should be clear what the fee is and easily calculated on the payslip.

Some payslips may show ‘base rate’ as described in the COE, followed by ‘commission’ or ‘discretionary bonus’ payment – these are both added together for tax and NI calculations.


There are 2 types of expenses processed by the umbrella; expenses to offset against the worker’s tax and reimbursed expenses by the end client or agency.

  1. Up until 2017, umbrella workers were able to claim many expenses in order to reduce their taxable amount, but this changed with the Travel and Subsistence legislation in 2017.

Simply put, if an individual were classed as falling under Supervision, Direction and Control, they would be classed as being the same as permanent employees in the same role, and therefore unable to claim travel, food and other expenses.

Many umbrella companies automatically class their workers as being under SDC and do not permit travel and subsistence expenses to be submitted, suggesting that where there are substantial legitimate expenses such as training, equipment: laptop, mobile phone etc – these could be submitted at the end of the year via Self-Assessment to claim tax back.

Other umbrella companies offer for the individual to complete an assessment or questionnaire to determine if they don’t fall under SDC (this often also means outside IR35), and when this is the case, they should have an expenses policy and expense claim forms for any claims submitted through the umbrella.




  1. Agencies may agree to reimburse expenses to a worker and this is usually documented in correspondence with the umbrella at the start of the assignment, and will be visible on invoices or remittance notices. Each agency/end client may offer to cover different things; 25p to 55p per mile, a fixed amount per trip, others cover parking tickets. In order to process these payments, the agency should have received expenses claim forms along with receipts to evidence this.

When funds are received by the umbrella, the expenses are usually processed separately and will appear on the payslip but will not be taxed. Eg if the worker has £100 expenses paid by the agency, they will receive the £100 on top of their salary payment.

Employer costs

As the umbrella company charges a small weekly or monthly margin, this does not cover the costs that are incurred as an employer. The umbrella fee/margin is not visible on a payslip otherwise it would be vatable, and that some umbrellas issue a pay reconciliation statement which should show everything from funds received, employer deductions etc and be simple to understand.

The government states very clearly about the money received from the agency and how this is NOT to be classed as the gross salary rate for the individual:

The agency deducts a fee for placing an individual with the client and pays the rest of the money (sometimes known as the assignment rate or the limited company rate) to the umbrella company.

This rate is different to the rate a worker gets paid from the umbrella company, because of the additional costs for the umbrella company, which include:

  • administration costs (sometimes charged separately by the umbrella company)
  • employer National Insurance contributions
  • employer workplace pension contributions
  • holiday pay
  • other amounts to cover other specific costs, such as Apprenticeship Levy


The rate paid to the umbrella company by the agency will need to cover the costs of the employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from the gross pay.

These costs do need to be clearly shown so that the contractor is aware of this. It will be visible on the Key Information Document as well as any pay illustrations being sent out, and obviously on the payslips.

BEIS stated: We don’t like to see things described as ‘employer costs’ and would want to see it broken down into the constituent parts so the worker is clear what each element is. The salary sacrifice element should be set out separately and will also need to appear on the KID documents, and think it should be reflected in the non-statutory part of that document. Not sure which part (employer or employee) as it will depend on how it is contractually set out between the employer and employee.

Leaving an umbrella

Just like with any employment, the worker should notify the umbrella that they wish to leave under the terms of their COE.

However, it is common for an umbrella worker to ‘jump ship’ and go radio silent, moving on without any notification. The umbrella company should have a process in place to check in on workers who have not had recent payments to see if they are between contracts or if they have moved on to another employer.

Arrangements should then be made to notify the payroll department and issue a P45 to the individual.

‘Non-Traditional’ Umbrellas / tax planning products

There are always some out there looking to get more for their money, and there are multiple options in the market, and these evolve with legislation changes.

Options for retaining more money than standard PAYE have been around for years, things have just changed as legislation has. There were EBTs (employment benefit trusts) that lasted for years, self-employment options, now we hear of ‘tax planning’ ‘payment solutions’ ‘enhanced umbrellas’ and ‘wealth maximising solutions’ offering various products:

Wage advances – what it says! Some salary taxed, another payment not taxed!?
Annuity (or pension) – answer questions about health diet exercise etc and then get an ‘advance’ on the annuity/pension
Loans from a trust – paid a small salary then a loan is requested from a Trust based upon the calculated annual salary. This is what the Loan Charge is focussing on!
Employment loans – with the correct paperwork, an actual interest-bearing repayable loan, this is legitimate.
JSOP (joint share) and GSOP (growth share) – lots of paperwork, 75-80% take home, get an advance based on company shares and declare and pay tax on it at end of the year.

Paying on to a Limited Company – some companies set them up a limited company in the background (sometimes one in Ireland) – so they get the small salary and another payment to their Ltd Co – but have to do tax returns at the end of the year and pay tax on it.

Stocks and Shares – A cash advance based upon stocks/shares in the business.

Gross payment to bank account –for a fee (usually a % of the money received from the agency, they offer to process the payment directly to the individual. When questioned, some have been told to do a self-assessment at the end of the year, others have been told they don’t have to.

Most of the time, these secondary payments will be made through a separate entity and will not be visible on any payslip – as the payslip should match the RTI report which goes to HMRC.

Some use the Isle of Man, Jersey, Guernsey, Portugal, British Virgin Islands, Hong Kong or further away. Some say that they are fully based on the UK, but the second payment almost always come from another country due to tax laws.

Employment Through An Umbrella Company

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