Umbrella companies
An umbrella company employs you and supplies your services to the agency. Your take-home is lower than the assignment rate because employer National Insurance at 15%, the apprenticeship levy where it applies, holiday pay and the umbrella's margin all come out of that rate before you are paid — they are not added on top of it.
The confusion is almost always the same one: an assignment rate is not a salary. Once you know what has to come out of it before you are paid, umbrella payslips stop looking like a mistake.
Where the money goes
The assignment rate is what the agency pays the umbrella. It is not what you earn, and the difference is not the umbrella being greedy — most of it is statutory.
- Employer National Insurance at 15% above roughly £5,000 a year. Someone must pay it, and the rate is where it comes from.
- The apprenticeship levy, where the umbrella's payroll is large enough to be within it.
- Holiday pay — your money, funded from the rate, either rolled into weekly pay or held until you take leave.
- The umbrella's margin, which should be a flat weekly or monthly fee, not a percentage.
- Then your gross pay, taxed through PAYE: income tax and employee National Insurance.
Only the fourth of those is negotiable, and it is usually the smallest. Which is why umbrellas compete on service rather than on take-home — and why any umbrella competing on take-home is doing something you do not want.
Comparing offers properly
Two rates for the same work are not comparable if one is an umbrella assignment rate and the other is a limited company rate. The umbrella figure has employment costs still to come out — roughly 13% before anything else — so comparing the headline numbers overstates it substantially.
Ask which rate you are being quoted. A competent agency quotes both, and the gap between their two figures is itself the answer to how much the employment costs are.
For the underlying comparison in cash, the IR35 calculator models an umbrella and an inside determination the same way, because for tax purposes they are.
Payslip not making sense?
Send us the assignment rate and a payslip. We will tell you whether the deductions are what they should be, what your effective take-home is, and whether keeping your own company alongside is still worth it.
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Free assessment first. If there is work to do, you get a fixed quote in writing before anything starts.
What to avoid
Any arrangement promising materially more take-home than PAYE would give: loans that are never repaid, annuities, advances, offshore trusts, or a "capital" element to your pay. They are not clever structuring — they are the schemes that produced the loan charge, and HMRC pursues the individual, not the promoter who has since closed.
The test is simple and reliable. If the arithmetic of income tax and National Insurance does not explain the take-home being offered, something outside that arithmetic is being claimed, and it will be claimed against you years later.
Keeping your company as well
Working through an umbrella on one contract does not require closing your company. Keeping it lets you take other work, keeps the option of an outside engagement open, and preserves the ability to make employer pension contributions. Weigh that against the annual cost ofaccounts and a confirmation statement — seeclosing a company if it genuinely no longer earns its keep.
Questions people ask
What is an umbrella company?
A company that employs you and supplies your services to the agency or client. You become its employee, it invoices the agency, and it pays you through PAYE after deducting what it has to and its own margin.
Why is my take-home so much lower than the rate?
Because the assignment rate has to cover employer National Insurance at 15%, the apprenticeship levy where it applies, holiday pay and the umbrella's margin before you are paid anything. Those come out of the rate, not on top of it — which is why an umbrella rate and a limited company rate are not comparable numbers.
Should the agency quote me a different rate?
A well-run agency quotes an assignment rate for umbrella working and a separate, lower rate for a limited company, precisely because the first has employment costs still to come out. If you are given one number for both, ask which it is.
What about holiday pay?
It is your money, funded from the assignment rate. Some umbrellas roll it into your weekly pay, others hold it until you take leave. Either is lawful; what is not acceptable is holiday pay that is retained and never paid, which has been a persistent problem in the sector.
How do I spot a scheme to avoid?
Any arrangement promising take-home well above what PAYE would produce — loans, annuities, capital advances, offshore trusts. They do not work, HMRC pursues the individual rather than the promoter, and the loan charge showed how long that pursuit lasts.
Is an umbrella better than an inside IR35 contract through my company?
Financially they are close, since both tax the fee as employment income. The umbrella is simpler and takes the administration away; keeping your own company preserves flexibility for other work. It is a preference, not a tax decision.
Figures are for the tax year shown and change every April. They are general information, not advice — we check the current position for your circumstances before anything is filed.
Reviewed 19 October 2026.
Part of our work on contracting and ir35 — if you want someone to take it off your hands, start with our accountant for contractors page.