An umbrella company is a type of business that employs temporary workers and then places them on assignments with recruitment agencies or end clients. There’s no strict legal definition, but the basic idea is that the umbrella company becomes the employer, while the worker carries out jobs for different organisations. 

The rules for agencies and umbrella companies 

• Temporary or agency workers usually have to pay Income Tax and National Insurance (NICs) through PAYE, just like regular employees. 

• Since 2014, the rules on employment status mean that if a worker is under (or could be under) someone’s supervision, direction or control, they will automatically be treated as an employee. 

• Since April 2015, agencies and other employment intermediaries that place self-employed workers have had to follow strict reporting rules. They can’t simply pay workers “gross” (without tax deducted). Quarterly reports must be filed with HMRC, and penalties apply if they are late. 

HMRC’s latest warning 

In June 2025, HMRC published Spotlight 71: Warning for agency workers and contractors who are moved between umbrella companies. This guidance sets out warning signs that an umbrella company may be running a tax avoidance scheme. 

If you are working through an umbrella company, HMRC advises being especially alert to unusual arrangements or anything that seems too good to be true. You can read Spotlight 71 in full here.