Umbrella FAQs

The National Minimum Wage is the minimum pay per hour that all umbrella employees are entitled to – but most are paid well in excess of this. The following rates are applicable from 1^st April 2024.

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Full details are detailed below:

Category of worker	Hourly rate
Aged 21 and above (national living wage rate)	£11.44
Aged 18 to 20 inclusive	£8.60
Under 18	£6.40
Apprentice	£6.40

If you have any questions relating to your pay then please contact 01925 232 526 and our client care team will be happy to help you, alternatively email umbrella@brookson.co.uk and we will come back to you within 24 hours.

As an umbrella employee,  there are some benefits available to you that can provide tax and NI savings via your payslip, For example: Pension salary sacrifice. 

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How does salary sacrifice work?

Salary Sacrifice is an agreement to give up some of your gross income which is paid into a workplace pension before any deductions such as employer and employee national insurance contributions (NIC), income tax as an employee and an apprenticeship levy.

This example compares what a Brookson Umbrella Employee could potentially save when putting a proportion of their gross income through Salary Sacrifice.  

	£80,000 earnings + £0 pension	£80,000 earnings + £20,000 pension	Gross Income Tax and NI Saving
	£	£	£
Total Umbrella Income	80,000	80,000	
Brookson Margin (Umbrella)	(1,300)	(1,300)	
Pension Payments		(20,000)	
Employer NICs & Apprenticeship Levy	(8,747)	(6,245)	2,502
Employee Income Tax & NICs	(18,822)	(11,473)	7,349
Taxable Income (gross pay)	69,953	52,455	
Take home pay	51,131	40,982	
Total remuneration package (taxable income, pension contributions)	69,953	72,455*	
Total remuneration package (take home pay, pension contributions)	51,131	60,982*	

*Inclusive of lump sum pension

Information is based on our current understanding of taxation legislation and regulations.  Any levels and bases of, and reliefs from, taxation are subject to change.

Key Information Documents were introduced on 6th April 2020 and is an attempt to increase pay transparency for umbrella employees and provide key information to them regarding their assignments.

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The Key Information Document should be provided to the prospective employee, prior to terms being agreed, enabling them to understand what deductions will be made from their pay before they make a decision whether to accept the engagement or not.

What information should a KID include?

The KID should be a concise document and address the key aspects of employees’ assignments as follows:

• Name of employee – This isn’t specifically required but ensures the KID is personal to the individual employee;
• Nature of contract – As an umbrella employee, you will be engaged on an employment contract;
• Who pays the employee – This will be your umbrella employer; 
• Gross rate of pay – Determined as your hourly rate from your initial illustration;
• Payment dates and intervals – Usually when your umbrella company is paid by the agency;
• Statutory deductions – This normally comprises Employers NI, Employers pension costs and Apprenticeship Levy;
• Any other amounts retained from employee income – Namely your umbrella company weekly/monthly margin;
• Expected or minimum rate of pay to you – The minimum rate of pay is the National Minimum Wage;
• Any other deductions from your gross pay required by law – This comprises Employee’s NI, Employee’s pension costs and student loan deductions (if applicable);  
• Any other fees for goods and services;
• Any employee benefits;
• Holiday pay entitlement – This amount is generally advised to be “kept to one side” on each payslip for when you are on holiday.

No. Generally your umbrella provider will set up professional liability, employer’s liability and public liability cover on your behalf.

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If you haven’t been paid, speak to your agency and umbrella employer directly to find out why.

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Mistakes can happen, and if you haven’t been paid then you need to know why as quickly as possible. Make sure you’ve followed your umbrella company’s processing procedure in full (i.e. has your time sheet been submitted and authorised in the right way?)

It may be as simple as this. But if you can’t find an obvious reason, you should liaise with your agency and your umbrella employer to work out what has gone wrong.

If you have a Student Loan, your employer is legally obliged to make a repayment every month from your salary.

All employers – including umbrella companies – have to make deductions from your earnings to help repay your student loan. The amount deducted is forwarded to the government for credit to your Student Loan account. Each plan has a threshold for your weekly or monthly income. So you don’t make a payment if your earnings are under the threshold. If they are over the threshold, the repayment is calculated on the difference between the two. So if you earn above the threshold for Plan 1, 2 , 4 and 5 your repayment will be 9% of the amount you earn above it.

You only repay 6% of the amount you earn over the threshold for the Postgraduate Loan.

Thresholds for 26/27

Plan 1
£26,900 (previously £26,065 for 25/26)

Plan 2
£29,385 (previously £28,470 for 25/26)

Plan 4
£33,795 (previously £32,745 for 25/26)

Plan 5
£25,000 (first year in operation)

Postgraduate Loan

£21,000 (unchanged)

Statutory payments are made to employees to cover specific periods when they can’t earn, for instance when they are ill or have a baby.

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All employers are entitled to claim money to cover an employee’s absence under certain circumstances. Being an employee of an umbrella company means can claim these benefits – such as statutory sick pay and statutory maternity pay – as long as you meet certain criteria.

If you are employed by an umbrella company, you only need to complete a self-assessment tax return if you have additional income that is not taxed PAYE by them.

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Because contractors often have income from different sources, it is sometimes processed in different ways. If all your earnings are processed through an umbrella company, then all your tax has been taken via PAYE and there’s no need to complete a tax return.

However, if you have income which is not taxed by deductions from your umbrella provider, under PAYE, you will probably need to complete a tax return in order to provide HMRC with the details. This is called Self- Assessment.

Income that is not taxed under PAYE won’t necessarily be from contracting. It could include income you get from renting out a property, or dividends from any company investments. You must tell HMRC if you receive taxable income in addition to the income you’ve had taxed through PAYE. They will tell you whether you have to complete a tax return form.

If you want to check you are paying the right amount of tax, or if you think you may have overpaid or underpaid tax, you should contact HMRC directly on the Taxes Helpline – 0300 200 3300.

Along with your payslips, your umbrella employer is obliged to provide you with a P60 each year.

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A P60 is a form that explains how much you’ve earned over the tax year (which runs from 6 April to 5 April the following year). It also includes how much you’ve paid in National Insurance contributions and Pay As You Earn (PAYE) income tax. As well as your regular payslips, your umbrella employer must provide you with a P60 by 31st May, following the relevant tax year.

‘Pay intervals’ are the periods of time in between payments you receive, usually a week or a month. The odd day or days at the end of the last complete tax week are added up to make a full week – known as week 53.    

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If you work for an umbrella company, then they will pay you regularly, generally weekly or monthly. The duration between these payments is known as a ‘pay interval’. These weeks typically follow ‘tax weeks’, periods of 7 days which follow on from each other starting on 6 April each year. So the first tax week runs from 6 to 12 April inclusive, the second tax week runs from 13 to 19 April inclusive, and so on.

This system allows all payroll systems to track time in the same way, but it means that an odd day or days may accrue at the end of the last complete tax week in the year, (5 April or in leap years, 4 and 5 April). To solve this, they are treated as a whole tax week, which is referred to as ‘week 53’. Payments made in week 53 are made on a non-cumulative basis. This means they may lead to an underpayment, due to the extra personal allowance provided to protect the level of take home pay in that pay period.

If you think your tax code is incorrect, you should contact HMRC directly.

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Sometimes errors are made in issuing tax codes, but your umbrella company is legally unable to change tax codes without instruction from HMRC.

If you believe a mistake has been made, you need to get in touch with HMRC directly as soon as you can.

You can either ring them directly on 0300 200 3300 or, if you prefer, set up a personal tax account using their online service.

The online service allows you to:

• Check your tax code and Personal Allowance
• See if your tax code has changed
• Tell HM Revenue and Customs (HMRC) about changes that affect your tax code
• Update your employer or pension provider details
• See an estimate of how much tax you’ll pay over the whole tax year
• Check and change the estimates of how much income you’ll get from your jobs, pensions or bank and building society savings interest

A notice of coding shows your tax code if you are going to pay through the PAYE system. The notice is usually sent out in January or February for the tax year beginning on the following 6 April.

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The code shown in the notice is given for that tax year only. The notes that come with the notice of coding explain how the code is worked out. Not everyone gets a notice of coding each year, it depends on what allowances and reliefs you are claiming and whether these tend to change from year to year.

If the only changes are the increase of allowances in the Budget or any change in the tax rates, your umbrella will include these automatically in your wages or pension and you won’t get a notice of coding.

If HMRC does not have enough information to issue a full tax code, an emergency tax code is generated until more information is received

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If your personal circumstances change, there may not be enough time to get a full tax code before you need to make a payment. To bridge the gap, your umbrella employer will be told to use a temporary or emergency code. This code is indicated by a ‘W1/M1’/X suffix on your tax code (i.e. 1257 X). This stands for ‘Week 1’ or ‘Month 1’ and indicates that HMRC has asked your employer to operate your code on a non-cumulative basis.

Once they have more information, the tax code can be adjusted and any corrections made.

This is the amount retained by your umbrella company when they pay you to cover their costs.

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There are certain costs that all employers face, such as Employers National Insurance and the Apprentice ship Levy costs – these are retained by your umbrella company and paid over to HMRC as part of PAYE legislation.

Contractors generally earn more than salaried employees doing the same kinds of work and one of the reasons for this is that employing someone comes with costs beyond just the individual’s salary. In order to cover these statutory costs, the umbrella company will usually retain an amount from your ‘contract rate’. The contract rate charged to the end hirer is generally inflated over and above the PAYE or agency rate to fully cover the umbrella company  Employers National Insurance and Apprenticeship levy costs.

Unfortunately, not. Visas can only be sponsored by the company who you will actually be performing the work for. Because an umbrella company is an intermediary, they are not permitted to sponsor visas.

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Typically, the costs of working through an umbrella company are less than running a limited company, although without the tax advantages. For any contractor captured permanently under IR35, it can be the best way to work in compliance with HMRC guidelines.

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The joining process for an umbrella company is simple and as soon as you’re set up you can start your contract right away. An umbrella company helps to keep everything straightforward, so you meet your tax obligations compliantly without any further responsibilities. All you have to do is submit your timesheet to allow payment to be made. Compared to running your own limited company, the administrative burden is substantially lower.

Umbrella companies pay employees using the standard PAYE system, calculated the same way for all employees in the UK. This is applied to your salary after their margin and employer costs have been retained from your gross contract rate.

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When working out how much take home pay you will get under an umbrella company, it’s important to understand the difference between your contract rate and your taxable salary.

Your contract rate is usually the figure that you have been provided by the agency or end hirer. This is the amount invoiced and paid to your umbrella company. The umbrella company then removes certain amounts from the gross figure:

o    Employer costs (Employers NI and apprenticeship Levy)

o    Umbrella company margin

This gives you your salary. Just as with standard employment this is then subject to PAYE tax, so the umbrella company will retain:

o    Income tax – calculated at the rate for your earnings bracket

o    Employees National Insurance

Whatever is left is your take home pay – the amount transferred into your bank account. When negotiating your contract rate, you must take these deductions into account before agreeing on a figure, so you know exactly how much you will earn.

PAYE is a method of paying income tax and National Insurance contributions and is used by all employers operating a payroll in the UK.

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PAYE is a system that taxes earnings before they are received by the worker. It doesn’t apply to many contractors who operate through a limited company (PSC), however changes in IR35 regulation from April 2021 ensure that any contractors captured are paid through PAYE for those assignments.

If your end hirer decides that you are captured by IR35, then you may find it best to conduct your work under an umbrella company. By acting as your employer, the umbrella company invoices on your behalf and deducts tax and National Insurance contributions from your gross pay. HMRC provides a tax code to your umbrella employer to advise how much tax to deduct from your pay.

As an umbrella employee, you are taxed at the same rate as any permanent employee: 20% if you earn within the basic rate tax bracket, 40% if you earn within the high rate tax bracket and 45% if you earn within the additional rate band (English or Welsh tax payers).

Working under an umbrella company essentially makes you an employee, meaning you are charged income tax according to PAYE rates and not limited company rates. Being taxed on an employment basis in this way means your level of income will determine your tax rate.

2025/26 and 2026/27 Tax Year (If you are an English or Welsh tax payer)

For the above tax year, if you earn less than £12,570, then your earnings fall within the personal allowance threshold, meaning you don’t have to pay any tax.

If you earn between £12,570 and £50,270 then will fall into the basic rate bracket and be taxed at 20%.

If you earn between £50,270 and £125,140 you will fall into the higher rate bracket and be taxed at 40%.

Income above £125,140 is in the additional rate tax bracket at 45%.

Scottish 2025/26 Tax Year

Band

Income Range

Rate

Starter Rate

£12,571 – £15,397

19%

Basic Rate

£15,398 – £27,491

20%

Intermediate Rate

£27,492 – £43,662

21%

Higher Rate

£43,663 – £75,000

42%

Advanced rate

£75,001- £125,140

45%

Top rate

Above £125,140

48%

Scottish 2026/27 Tax Year

Band

Income Range

Rate

Starter Rate

£12,571 – £16,537

19%

Basic Rate

£16,538 – £29,526

20%

Intermediate Rate

£29,527 – £43,662

21%

Higher Rate

£43,663 – £75,000

42%

Advanced rate

£75,001- £125,140

45%

Top rate

Above £125,140

48%

Joining an umbrella company is easy. Once you have found an organisation offering umbrella solutions – such as Brookson – you just need to gather the appropriate documents and complete a simple onboarding process.

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Joining an umbrella company is essentially the same as joining a company as a member of staff. All the same processes are required, since you are becoming an employee of the umbrella company.

In order to begin, you will need to get your P45 or complete a starter checklist (this establishes a temporary tax code). The umbrella company will also require administrative details such as your National Insurance number, bank account and personal details.

As part of the onboarding process you will need to provide documents confirming your identity, such as a passport or visa. Once you find a contracting role, your chosen umbrella provider will sign a contract with your agency and they in turn will issue you with a contract of employment setting out all the related terms and conditions.

No. You don’t have to be paid through an umbrella PAYE solution, but if you are permanently IR35 captured it may be your best solution.

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Following the IR35 changes in the private sector from April 2021, the responsibility for determining whether contractors are IR35 captured or not sits with end hirer.

If you receive a status determination statement advising you that you are captured, you may need to revise the way you operate in order to remain PAYE compliant for HMRC. If you are permanently captured by IR35, and the agency or end hirer closest to you in the chain does not operate a payroll function, becoming an employee of an umbrella company will allow you to get paid via PAYE whilst remaining as independent as possible.

Working under an umbrella company is just one option open to contractors, but is popular among those captured by IR35 by offering a cost-effective and fully-compliant way of getting paid on a PAYE basis.

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There’s no obligation for contractors to use an umbrella PAYE solution, and many prefer to operate as a limited company (also known as a Personal Services Company) for the tax efficiency it brings. However, if you are permanently IR35 captured, an umbrella company may be the best solution.

From April 2021, changes in the way IR35 is assessed and implemented in the private sector will mean many contractors find themselves partially or permanently captured by IR35. The decision as to whether you are IR35 captured or not falls with your end hirer, and they will provide you with a status determination statement that advises you of this.

If you are captured, then you’ll need to be paid by PAYE according to HMRC rules. If the agency or end hirer (whoever is closest to you in the chain) operates a payroll function, then you can continue as normal. They will deduct PAYE and National Insurance from your net invoice value. You can withdraw the net amount with no further tax implications, as long as you retain funds in the company to pay running costs such as accountancy fees and insurance.

However, if the fee payer doesn’t have the facility to operate a payroll function, then you may need an umbrella solution to take care of PAYE.

If you already operate as a limited company (PSC), then you don’t necessarily need to close it down. You can switch between the two, using your company when non-captured and an umbrella solution when you are. Brookson’s Flex solution offers a cost-effective way of blending both these approaches to contractor’s who are not permanently captured.  

An umbrella company employs contractors, giving them the freedom to work on different contract assignments, whilst paying them under PAYE. In this way it offers a simple solution that is fully compliant with IR35.

How an umbrella company works

An umbrella company is a business often used by recruitment agencies to pay temporary workers.

The umbrella company employs you and pays your wages through PAYE. It does not find temporary work for you. The recruitment agency (also known as an employment business) does this.

The umbrella company is your employer and will pay you. The work you carry out will be for one of the recruitment agency’s clients.

After signing up, you are able to deliver on contract assignments and get paid like an employee via the umbrella company payroll.

Signing Up

Because you become an ’employee’ of the umbrella company, you need to provide your P45 or complete a starter checklist to sign up. You also need to provide general admin information such as your National Insurance number, bank account and personal details, and confirm your identity with your passport or visa.

Contracts

Once you find a contract role, your PAYE umbrella company will sign a contract with your agency. You will also sign a contract of employment with the umbrella company.

Timesheets and Invoicing

Each week or month you submit your timesheet details to the end hirer and your umbrella company. The umbrella will then submit an invoice to your agency on your behalf. This covers the hours worked during the previous period. The agency will then pay the umbrella for the invoiced sum. (It’s worth noting, that you should always check with your umbrella how often they make payments. Some make payments the same day they receive funds, others may only pay once per month.)

Payment

The umbrella will pay you directly into your bank account on the pre-agreed date. Employment costs’ (Employers’ NICs and the Apprenticeship Levy) and the umbrella company margin are retained by the company to arrive at your gross pay. The net amount you receive will already have the income tax (PAYE) and Employees’ National Insurance Contributions (NICs) deducted from your gross pay.  

An umbrella company is a business that contractors and freelancers can work through for assignments, as an alternative to setting up a limited company.

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For contractors, an umbrella company is generally the main alternative to setting up a limited company. The contractor becomes an employee of the umbrella company and acts as an intermediary between the worker and their end hirer (which could be directly with your end hirer company or a recruitment agency).

In this respect it is ideal for any contractor captured by IR35. Because you are legally a permanent employee of the umbrella company, your tax is processed according to PAYE along with National Insurance. This gives you the freedom to take on fixed and short term assignments with different end hirers. The principal function of an umbrella company is to organise and simplify billing and payment for contract work.