 | The examples and perspective in this article deal primarily with the United Kingdom and do not represent a worldwide view of the subject. (September 2019) |
An umbrella company is a company that employs agency contractors who work on temporary contract assignments, usually through a recruitment agency in the United Kingdom. Recruitment agencies prefer to issue contracts to a limited company to reduce their own liability. It issues invoices to the recruitment agency (or client) and, when payment of the invoice is made, will typically pay the contractor through PAYE with the added benefit of offsetting some of the income through claiming expenses such as travel, meals, and accommodation.
Umbrella companies have become more prevalent in the UK since the British government introduced so-called "IR35" legislation that creates tests[1] to determine employment status and ability to make use of small company tax reliefs. According to criteria set out by the UK Department for Business, Innovation & Skills, there are an estimated 4 million temporary workers in the UK, of whom 1.56 million are "classed as being in a management or senior official role, a professional occupation or an associate professional and technical occupation." It is estimated that 14% of the UK's professional contractors are currently managing their business by working through an umbrella company.[2]