Answers · UK 2025/26

How does pay work through an umbrella company in the UK?

Through an umbrella company you are a PAYE employee of the umbrella. The end client pays the umbrella an assignment rate; the umbrella deducts employer NI (15%), its margin (typically £20-30/week), holiday pay accrual, and then pays you gross pay from which PAYE income tax and employee NI are deducted. Your take-home is typically 60-70% of the assignment rate depending on your tax position.

Last updated: 30 June 2026Last reviewed: 30 June 2026How we verify

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Umbrella companies are used by contractors and temporary workers to operate inside IR35 or for short-term contracts where setting up a limited company is not worthwhile. Understanding the pay calculation is essential to avoid surprises. **The pay chain** 1. **End client** (or recruitment agency) pays the umbrella an **assignment rate** (e.g. £500/day or £35/hour) 2. **Umbrella deducts** (before your gross pay is calculated): - Employer NI: 15% above the £5,000 Secondary Threshold, annualised. On a day rate of £500 x 5 days x 46 weeks = £115,000/year, employer NI is approximately (£115,000 - £5,000) x 15% = **£16,500/year** - Umbrella margin: typically **£20-£30/week** (£1,040-£1,560/year) - Apprenticeship Levy: 0.5% of payroll above £3,000 (usually absorbed in the margin) 3. The result is your **gross employment income** 4. From gross pay, PAYE deductions are made: - Income tax at 20%/40%/45% less Personal Allowance (£12,570) - Employee NI at 8% (£12,570-£50,270), 2% above 5. The result is your **net take-home pay** **Worked example** Assignment rate: £400/day, 5 days/week, assume 46 working weeks = £92,000/year - Employer NI: (£92,000 - £5,000) x 15% = **£13,050** - Umbrella margin: £25/week x 46 = **£1,150** - Holiday pay (usually retained and paid on accrual, say 12.07%): ~£9,360 - Gross pay after deductions: £92,000 - £13,050 - £1,150 = £77,800 (plus holiday) - Income tax on £77,800: approx £21,372 (£5,486 basic + £10,800 higher + £5,086) - Employee NI: approx £3,000 - **Net take-home: approx £53,400** (~58% of assignment rate) **Holiday pay** Most umbrellas include holiday pay (12.07% of assignment rate) within the gross pay calculation. Ensure you know whether holiday pay is "advanced" (included in regular pay) or accrued and paid separately. **Choosing an umbrella** Use only FCSA-accredited or Professional Passport-approved umbrellas. Avoid schemes offering unrealistically high net pay -- these are often tax avoidance arrangements that can leave you with large unexpected HMRC bills.