An umbrella company becomes your legal employer. Your agency pays the umbrella an assignment rate for your work, the umbrella runs you through PAYE, and you get one continuous employment record no matter how many contracts you take. The catch is that the assignment rate is higher than a salary because it has to cover employment costs an employer would normally pay separately — and those come out before you are paid.
Where the money goes
Working down from the assignment rate:
- Umbrella margin: the only part the umbrella keeps — a fixed weekly fee, typically £15–£30. It does not rise with your rate.
- Employer's National Insurance (15%): because the umbrella employs you, it pays employer NI on your salary above the £5,000 secondary threshold. By law this is funded from the assignment rate, so it appears on your payslip. It is the biggest deduction.
- Apprenticeship Levy (0.5%): a charge large employers pay; the umbrella passes its share down.
- Holiday pay (12.07%): funded from the rate and part of your gross — see contractor holiday pay.
- Income Tax and employee National Insurance: the normal PAYE deductions on your gross salary.
What lands in your account is usually 60–65% of the assignment rate. The umbrella take-home calculator shows every line for your own figure.
Compliant vs non-compliant
A compliant umbrella shows every deduction clearly, pays you through PAYE, and your take-home is the ordinary 60–65%. Be wary of any umbrella promising 85–90% take-home or describing pay as "loans", "advances", "credit" or anything routed offshore. These are tax-avoidance schemes; HMRC pursues the worker for the unpaid tax, not the promoter, and you can be left with a large bill years later. If the take-home looks too good to be true, it is.
Is an umbrella right for you?
Umbrellas suit inside-IR35 contracts, short assignments, and anyone who wants no admin — no company, no accounts to file, no IR35 record-keeping. The trade-off is take-home: outside IR35, your own limited company usually keeps more. Weigh them up on the umbrella vs limited calculator, and check your status first with the IR35 calculator.
General guidance for 2026/27, not tax advice. Always read your Key Information Document and payslip, and check an umbrella against HMRC's guidance on non-compliant arrangements.