While there is no formal legal definition, the term ‘Umbrella Companies’ generally refers to employment intermediaries that hire temporary workers who, in turn, undertake assignments for various recruitment agencies and/or end clients (the ultimate recipients of the services). Umbrella companies typically enter into contracts with recruitment agencies, which then arrange suitable work opportunities.

Employment Intermediaries Rules

The ‘employment intermediaries’ rules apply to both staff and employment agencies:

  • Agency workers are ordinarily subject to PAYE and National Insurance Contributions (NICs) on their earnings.

  • The employment status rules were amended in 2014: any worker provided via an agency who is subject to, or has a right of, supervision, direction, or control by another person will automatically be regarded as an employee.

  • From April 2015, specific reporting requirements came into effect for employment intermediaries (agencies) that supply self-employed workers. These measures make it more challenging for agencies and other intermediaries to pay workers gross — i.e. as if they were self-employed in their own right. Returns must be submitted from 6 April 2015 for each quarter ending 6 July, 6 October, 6 January, and 6 April, with penalties applying for late submissions.

HMRC Spotlight 71

In June 2025, HMRC issued Spotlight 71, titled ‘Warning for agency workers and contractors who are moved between umbrella companies’. This publication draws attention to key warning signs that agency workers and contractors should look out for, as these may suggest that the umbrella company they are engaged with is operating a tax avoidance scheme.

HMRC advises taxpayers to remain particularly vigilant when dealing with umbrella companies. Spotlight 71 can be viewed here