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With self-employment become an increasingly popular option within the UK, the decision to operate as a limited company or working through an umbrella agency is becoming popular.

There are numerous contributing factors which influence the direction taken, largely dictated by the type of business and the individual’s experience in business management.

Largely, umbrella agencies are considered when individuals do not have large amounts of time or experience to dedicate to managing business accounts. In addition, individuals with short contracts generally operate through an umbrella agency to minimise their personal administrative responsibilities. The main advantages of working through an umbrella agency include avoiding the hassle of setting up a limited company, minimising the requirement for handling business accounts, minimum effort to arrange VAT returns, payroll matters and taxation.

To accommodate the different requirements of specific businesses, there are a range of umbrella agencies available enabling tailored support packages. Examples of these are:

Salary only scheme or PAYE umbrella

This category defines the most common umbrella strategy. This approach does not attempt to operate outside IR35 legislation and all income is received via salary only. Most umbrella companies make payments through the PAYE system. Any expense claims may only include services or items that are legalised by HMRC regulations. You should research the reasoning behind any deductions made when choosing an umbrella company.

Other arrangement types

Other umbrella companies can offer alternative methods of working, sometimes involving offshore arrangements or loans utilising foreign currency. According to some, the payment method of this approach offers a distinct advantage over the traditional PAYE umbrella schemes.

With these two main categories operating in different ways, it is highly important that you are comfortable with the strategy of work being offered and the legality surrounding this. It is worth noting some of the major issues people encounter when working with an umbrella company are:

Speed of payments

According to most, the speed of processing and quality of service provided by other umbrella agencies often does not meet expectations. For this reason, it is important to consider the speed of processing an umbrella agency may offer and whether this is well suited to your circumstances of can be tailored to do so. It is advisable to initially clarify how quickly the umbrella agency intends to manage invoices and how quickly you can expect payment once invoices have been settled.

Monies held back

As umbrella companies function by employing contractors, it is common for them to withhold a small proportion of money to account for particular circumstances such as workers holiday, with the intent of paying this amount at a later date. It is important to think about whether this arrangement will suit your individual requirements and it may be worth clarifying with the selected umbrella company the monies that may be retained and how you expect to receive this.


The fees specified by different umbrella companies vary substantially. Commonly, umbrella companies operate by charging via a percentage basis. The method of operating is something worth considering when selecting an umbrella company. Finalising the fees you expect to pay and the services you hope to receive can often be tailored to personal circumstances. Reputable umbrella agencies normally base their fees on the expected income of the individual. When selecting an umbrella company, it is also beneficial to question any hidden costs or penalties that may be encountered,


Select an established or well-revered umbrella company to manage your income. Most umbrella agencies are managed by qualified accountants.

In fact, most agencies will suggest an appropriate umbrella company. These recommendations are based on the standard of service the umbrella company offers, although some agencies have a fixed policy, whereby, they provide a standard list of recommendations. This may be something worth considering when choosing an umbrella company and it may be beneficial to liaise with different agencies to establish frequently recommended agencies. Although, it should be considered that personal recommendations be incentivised.

Overall, when researching possible umbrella companies, you need to consider multiple factors to tailor the services acquired to your specific needs. It is important to check the credentials and reputation of the umbrella company. In addition, establishing expectations for items such as fees charged or speed of payment is advisable.

As a contractor, umbrella agencies offer a simple and effective solution to managing your finances. Largely, umbrella companies alleviate the pressures associated with the substantial amounts of paperwork linked to managing business accounts. By delegating some of this work to an umbrella company will reduce stresses of business management and enable you to focus on other elements of the company.