by Asim Abbas
11 November 2026 
Umbrella companies in 2026: how they work and the new agency rules
Umbrella companies in 2026: how they work and the new agency rules
Umbrella companies employ contractors and run their pay through PAYE, often for inside IR35 roles or agency work.
- You’re an employee of the umbrella
- Agencies now share PAYE liability from April 2026
- Your payslip should show full PAYE and NI
- Beware of take-home pay that looks too good
They can be a simple option, but non-compliant umbrellas and tax avoidance schemes have cost many workers money. From April 2026, the rules changed to tackle this.
This guide explains how umbrella pay works, what changed and how to spot a scheme to avoid.
How umbrella pay works
The agency or client pays the umbrella an assignment rate. From this, the umbrella deducts its margin, employer National Insurance, the Apprenticeship Levy and holiday pay, then pays you through PAYE with Income Tax and employee NI deducted.
An assignment rate of £400 a day for a 5-day week is £2,000. Typical deductions include employer NI at 15% above the secondary threshold, the levy at 0.5%, a margin of around £20 and holiday pay accrued at 12.07%. Gross pay, including holiday pay, might be around £1,725, with tax and employee NI then taken off. Your gross pay is often a lot lower than the rate you were quoted.
What changed in April 2026
From 6 April 2026, recruitment agencies supplying workers to clients became responsible for accounting for PAYE on payments made through umbrella companies. If an umbrella fails to pay the tax, the agency, or the client if there’s no agency, can be made liable. This aims to remove non-compliant umbrellas from supply chains.
Salary after tax calculator
Check your umbrella take-home.
Red flags to watch for
- Take-home pay of 80% or more of your rate
- Part of your pay described as a loan, advance, bonus or credit
- Payments that don’t appear on your payslip
- Your payslip gross pay doesn’t match the money in your bank
- Being asked to sign documents you don’t understand
These are signs of disguised remuneration schemes. HMRC can, and does, chase the worker for the unpaid tax, even years later.
Fixed-fee accountancy support
Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.
Get a fixed-fee quoteCall 0161 531 4179How to check your umbrella
- Ask for a Key Information Document before you start
- Compare your payslip to the money paid into your bank
- Check your HMRC personal tax account shows the same pay and tax
- Check the umbrella is accredited by a recognised body
Umbrella or limited company?
For inside IR35 roles, an umbrella is often simplest, since a limited company adds admin without much tax benefit. For outside IR35 work, a limited company can still be more efficient. See our IR35 guide.
Expenses
Umbrella employees generally can’t get tax relief on travel and subsistence when working under supervision, direction or control, which covers most umbrella workers. Be wary of umbrellas offering large expense claims to boost pay.
See HMRC’s guidance on working through an umbrella company. If you think you’ve been in a scheme, our tax investigations team can help.
What should I do next?
Before you start.
Against your bank.
Pay and tax match?
Frequently Asked Questions
Is an umbrella company legal?
Yes. Compliant umbrellas are legal employers that run pay through PAYE.
What changed for umbrellas in April 2026?
Agencies, or clients where there is no agency, became responsible for PAYE on umbrella payments.
Why is my umbrella take-home lower than my rate?
Employer NI, the levy, the margin and holiday pay come out before tax.
Can umbrella workers claim travel expenses?
Usually not, if they work under supervision, direction or control.
What if I used a tax avoidance umbrella?
HMRC may pursue you for unpaid tax. Get advice early.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Ali Imran
I’m Ali Imran, an accountant at Wingate Accountants. I help sole traders, landlords and directors get their returns filed early and accurately, without the last-minute panic.
