Top 10 Umbrella Company Questions Answered – For 2025/26
If you’re a contractor or freelancer working in the UK, choosing how to get paid is a crucial decision. Umbrella companies remain a popular option in the 2025/26 tax year — but they also come with a fair share of questions. Whether you’re new to umbrella payroll or looking to switch providers, we’ve answered the top 10 most frequently asked questions about umbrella companies in 2025/26.
1. What Is an Umbrella Company?
An umbrella company is a payroll intermediary that employs contractors and freelancers. It handles invoicing, collects payments from agencies or clients, deducts tax and National Insurance, and pays you a salary with a payslip — all while ensuring compliance with UK employment laws.
2. How Does Umbrella Payroll Work in 2025/26?
In the 2025/26 tax year, umbrella payroll continues to operate under PAYE (Pay As You Earn). Once you submit your timesheet, your umbrella company invoices your client or agency. After receiving payment, they deduct tax, NI contributions, pension, the Apprenticeship Levy, and their margin — then pay you your net salary.
3. Is It Better Than Being a Limited Company Contractor?
It depends. If you’re caught by IR35 or working short-term contracts, umbrella companies are often simpler and more compliant. If you’re outside IR35, a limited company might offer better tax efficiency. Umbrella is ideal for contractors valuing convenience over control.
4. What Deductions Should I Expect?
Expect the following deductions from your umbrella company:
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Income Tax (PAYE)
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Employee National Insurance
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Employer National Insurance
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Pension contributions (auto-enrolment)
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Apprenticeship Levy (0.5%)
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Umbrella company margin (weekly or monthly)
Always request a full breakdown before signing up.
5. How Do I Know If an Umbrella Company Is Compliant?
Look for membership in bodies like FCSA (Freelancer & Contractor Services Association) or Professional Passport. Also, steer clear of any schemes promising “90%+ take-home pay” — these are likely non-compliant and can lead to HMRC penalties.
6. Am I Entitled to Holiday Pay and Sick Leave?
Yes. As an employee of the umbrella company, you’re entitled to statutory benefits, including:
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Holiday pay (usually 12.07% of your gross pay)
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Sick pay (SSP)
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Maternity/Paternity leave
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Pension contributions
Make sure your provider clearly explains how these entitlements are calculated and paid.
7. How Quickly Can I Be Set Up with an Umbrella Company?
Most umbrella companies can set you up in 24–48 hours. You’ll need to provide identification, your contract details, and complete a few forms. Some providers offer same-day setups.
8. What’s the Difference Between Gross Pay and Assignment Rate?
The assignment rate is what your client or agency pays the umbrella company. Your gross pay is what you earn before tax after the umbrella deducts employment costs (e.g., employer NI and margin). It’s important not to confuse the two when comparing take-home pay.
9. Do I Need to Worry About IR35 When Using an Umbrella Company?
No. Since you are an employee of the umbrella company, IR35 does not apply. That’s one of the main advantages of umbrella working for inside-IR35 contracts.
10. How Do I Choose the Right Umbrella Company?
Look for:
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FCSA or Professional Passport accreditation
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Transparent payslip breakdowns
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Fair margin charges
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Good customer support
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Clear compliance practices
A great place to start in finding the right Umbrella Company for you is in our List Of Top 10 Umbrella Companies.
Conclusion
Choosing the right umbrella company in 2025/26 is more important than ever with continued regulatory scrutiny and evolving contractor legislation. By understanding how umbrella payroll works and what to look for, you can make an informed decision and stay compliant — while focusing on what you do best.
Looking for more details? Simply request a call back Request a Call Back and one of our Top 10 Umbrella Companies will be in touch
