Working Through An Umbrella Company? – 10 key phrases to understand

If you are new to umbrella working, you may be hearing lots of new words or phrases for the first time and not know what they mean.  Here, Meredith McCammond from the Low Incomes Tax Reform Group (LITRG) explains some of the terminology used and provides you with a few practical tips on the way, to help you avoid any potential problems while working through an umbrella company.

What is an umbrella company?

Umbrella companies are businesses that take on agency workers and other types of temporary workers as their own employees with an employment contract. They act as an intermediary between a worker and their end client or agency – an end client or agency pays the umbrella company, who then pays the worker.

Often the terminology around umbrellas can be confusing, so here we explain 10 key phrases you need to understand if you are going to work through one:


In the absence of any current government regulation of umbrella companies, there are two main bodies in the industry that set standards that umbrella companies should meet: FCSA and Professional Passport. Where an umbrella holds either accreditation it is a sign that the umbrella provider has met the standards for that body. However, umbrella companies do not have to join either of these bodies, it is a choice for each umbrella to make. If you have a problem with an umbrella company, check if it is a member of the FCSA or Professional Passport, as they would be interested to hear of any problems with their members.


Umbrella companies are employers and as such, are required to deal with pay, tax, and other legal obligations, just like any other employer. When an umbrella company says it is compliant – they are saying that they deal with all of these obligations properly. Anyone can set up a company and label it as an umbrella company, even if they operate a very different business model (for example, see ‘Disguised remuneration’, below). Therefore, some umbrella companies that say that are compliant are not compliant – and it is vital that you are on guard!


Umbrella companies often call the people that they take on as employees, ‘contractors’. This is because umbrella companies used to mainly cater for freelance professionals who typically work on a succession of assignments or ‘contracts’. Nowadays, they also offer their services to agency workers (who they might also refer to as ‘contractors’). This is because agencies prefer not to deal with pay/HR issues etc themselves – it saves them time and money and means they can concentrate on matching workers with available work.

‘Disguised remuneration (DR)’

Disguised remuneration is where you are paid a minimum wage element and a non-taxable element like a loan, grant, advance etc. DR is not ‘compliant’ (see above) with tax law, as in reality, all money paid to you in return for your services should be subject to PAYE income tax and National Insurance contributions (NICs). You need to make sure your umbrella company is not using a disguised remuneration scheme to pay you! Some possible warning signs for you to be aware of are: not receiving a payslip or receiving a payslip that shows a different ‘net’ amount to what you received; receiving more than one payment into your bank account each pay period; and information in your HMRC Personal Tax Account about your pay and taxes that does not match what you are being paid. We explain more about DR and umbrella companies here.


Stands for ‘Key information document’ – from 6 April 2020, an agency must provide agency workers with this document prior to signing them up for an assignment, even where they pass the worker to an umbrella company. The KID will give you information about your pay and other details about your employment. The document should make it clear what the agency will pay the umbrella company and what you will receive from the umbrella company (once all the deductions have been made – see ‘Uplifted rate’, below). If you don’t get a KID, you can complain to the Employment Agency Standards Inspectorate, who regulate agencies.


The margin is the amount the umbrella company charges for its services. Most umbrella companies have a margin of somewhere between £20-£25 per worker per week. The margin should be factored into the umbrella company rate (see ‘Uplifted rate’, below). This means, for agency workers, if the amount passed to the umbrella company by the agency has been uplifted sufficiently, the presence of the umbrella company margin should be completely cost neutral as far as the worker is concerned. Some umbrella companies charge for extras over and above the standard margin which may not be relevant or may have little value to you – make sure you do your homework before agreeing to any extra charges!

‘Preferred supplier list’

An agency may have a pre-approved ‘preferred supplier list’ (or PSL) of umbrella companies that it refers workers to. However, be aware that some agencies are incentivised by a commission into encouraging you to join up to certain umbrella companies. Do not go with an umbrella company just because it is on your agency’s Preferred Supplier List (or even just because it has certain accreditations – see ‘Accreditations’, above) – you still need to do your research thoroughly. A few agencies will also operate an ‘approved supplier list’ (ASL), where workers with existing relationships with umbrella providers can continue that relationship if that provider is on the agency’s ASL.

‘Rolled up holiday’

Some umbrella companies offer to include an amount for holiday pay in your wages on an ongoing basis – a system known as ‘rolled up’ holiday pay. Strictly this is incorrect, as the law says that it should be paid out at the time annual leave is taken, but some workers prefer the ’rolled up’ system. Make sure you understand how the umbrella will deal with your holiday – if it is not on a ‘rolled up’ basis, ask them to confirm the circumstances in which you may lose the holiday pay (for example, if you do not request it before the end of the holiday year). If you leave the umbrella company, ask them to confirm that all outstanding holiday pay will be paid to you with your final payment.


Stands for ‘Supervision, Direction, or Control. It used to be the case that if you worked through an umbrella company, then you could claim tax and NIC relief on the costs of getting to and from your assignment locations. However, since April 2016, this has been closed to anyone working under ‘supervision, direction or control’ of any person. Most agency workers have little autonomy over their work and will probably be under someone’s SDC. Agency workers are also caught under these rules where someone has the right of SDC over them, even if it is not exercised. HMRC consider everyone working through an umbrella company as being under SDC unless it can be proved to the contrary. Because of all these things, S,D,C catches most people and we wouldn’t expect to see home to work travel expenses being claimed often.

‘Uplifted rate’

When an agency passes a worker to an umbrella company, they must make sure they hand over the correct amount of money (as received from the end client as payment for the work) to the umbrella company. This includes the gross pay rate advertised to the worker (‘the agency rate’) plus all of the costs of employment the umbrella company will now have (e.g. holiday pay, employers NIC, auto enrolment costs) and the margin. These things together make the ‘umbrella company rate’ (the rate paid by the agency to the umbrella company). This money becomes the umbrella company’s income, from which they will then pay you your wage. It is important that you are clear on what rate your agency is quoting you to work through an umbrella – is it the ‘agency rate’ or is it the uplifted ‘umbrella company rate’. It should be the latter (uplifted rate).

The following example explains how this works:

Bob’s agency finds him an assignment for £175 a day (gross). On top of this, there are employment costs for the agency of about £55, meaning that the amount the end-client pays the agency is £230 (plus a margin). If the agency pays only the £175 to Bob’s umbrella company, then Bob is going to be very disappointed when he gets his first payslip, as he will see that all the umbrella’s employment costs have come out of the £175. Bob needs to make sure that the agency pays the umbrella the £230 they received from the end client.

More information?

For more information about working through an umbrella company see LITRG’s factsheet.  The factsheet covers a range of issues on which workers are likely to have questions including holiday entitlement and other employment right issues. It includes a helpful diagram explaining how umbrella companies work, a sample payslip to help demystify the sometimes-confusing payslip entries and links to more help. Very importantly, it includes a ‘ready reckoner’ to help workers understand whether the pay rate quoted to them to work through an umbrella company is roughly correct or not.

LITRG’s recent report on umbrella companies, takes a more in depth look at umbrella companies. One of the aims of the report is to help workers inform and protect themselves and having it to hand to refer to, will stand you in good stead for understanding and managing your tax position while working through an umbrella company.

There are also several podcasts published by IWORK which could be helpful:

018 Umbrellas In-Depth: Report by LITRG

019 Umbrellas In-Depth Part 2: Report by LITRG

026 Could Umbrella Regulation Mirror Financial Services?

027 Umbrella Regulation – Some Quick Wins Discussed With Professional Passport

030 Should umbrellas be banned? We discuss the TUC’s recent proposal.

006: How to identify tax avoidance schemes that pose as compliant umbrellas


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