An umbrella company is an intermediary which typically employs workers on behalf of an employment business (agency). The temporary workers are then supplied to end clients. 

Avoidance 

The umbrella company model can provide a useful employment solution for all parties, enabling flexible, temporary work whilst managing the administration, compliance and tax obligations. However, it has often been abused and used for tax avoidance purposes.   

Government estimates for 2022/23 indicate that: 

• umbrella companies were used to engage at least 700,000 temporary workers in the UK;
• of those workers, at least 275,000 were engaged by umbrella companies that failed to comply with their tax obligations; and
• approximately £500 million was lost to disguised remuneration tax avoidance schemes, almost all of which was facilitated by umbrella companies. 

Regulation of umbrella companies 

The previous government launched a consultation on tackling non-compliance in the umbrella company market in summer 2023. This was informed by an earlier call for evidence. The government has now published an outcome to the consultation, setting out how it intends to proceed.  

The government has announced that it will amend the Employment Rights Bill to bring umbrella companies within the definition of employment businesses. The government says that this will:  

• allow for the regulation of umbrella companies; and 
• bring umbrella companies within scope of the Employment Agency Standards Inspectorate’s (and subsequently, the Fair Work Agency’s) remit.   

Targeted measures to address abuse 

The consultation had invited views on measures to address abuse of the VAT flat rate scheme and the employment allowance, and had proposed the introduction of mandatory due diligence within the labour supply chain. The government will not proceed with these measures. However, it will continue to monitor levels of abuse and may consider taking action in the future.  

Changes announced for April 2026 

At the Autumn Budget 2024, the government announced that it will legislate to move the responsibility for accounting for pay as you earn and national insurance from the umbrella company to: 

• the recruitment agency; or
• the end client If there is no recruitment agency involved in the supply chain.  

The changes are expected to apply from April 2026.  

Further information 

• ICAEW’s Tax Faculty will publish an article on umbrella companies in TAXline in the coming weeks.