Umbrella companies have recently come under renewed scrutiny. In June 2025, HMRC released Spotlight 71: Warning for agency workers and contractors who are moved between umbrella companies. This publication serves as a warning to workers and contractors about arrangements that may be operating as tax avoidance schemes.
What are umbrella companies?
Although there is no legal definition, the term ‘umbrella company’ is generally used to describe an employment intermediary that employs temporary workers who go on to work for different agencies or end clients. Umbrella companies will often contract with recruitment agencies, who then source the work opportunities.
Employment intermediary rules
The employment intermediaries rules apply to staff and employment agencies and are designed to ensure that workers are taxed correctly.
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Agency workers are generally subject to PAYE and National Insurance Contributions on their earnings.
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Since 2014, workers supplied through an agency who are subject to, or have the right to be subject to, supervision, direction or control by any person are automatically treated as employees.
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From April 2015, employment intermediaries (agencies) who supply self-employed workers have been required to submit quarterly returns. These reports make it more difficult for intermediaries to pay workers gross, treating them as self-employed when they are not. Returns must be completed for each quarter ending 6 July, 6 October, 6 January and 6 April, and late filing penalties apply.
HMRC’s warning
Spotlight 71 sets out areas where taxpayers should be particularly cautious if they are working through an umbrella company. HMRC warns that some arrangements are being used to disguise tax avoidance schemes.
If you are engaged with an umbrella company, you should pay close attention to how you are paid, what deductions are being made, and whether your take-home pay seems unusually high. If any part of your income is described as a loan, grant or non-taxable payment, you should seek advice immediately.
Spotlight 71 can be viewed on the HMRC website here.
What this means for you
For contractors, it’s important to understand exactly how your pay is being calculated to ensure you are compliant and protected from future tax issues. For businesses and recruitment agencies, due diligence is essential when working with umbrella companies to make sure they are operating legitimately.
At A&C Chartered Accountants, we can help review your arrangements, identify risks, and make sure your payments and tax affairs are handled correctly. If you have any concerns about your current umbrella company or want reassurance that you’re operating within HMRC’s rules, get in touch with our team today.