Umbrella Companies

An umbrella company offers many of the benefits available through a limited company but without the administrative burden.

The umbrella company employs the locum and does the following:

Invoices your agency or client for the hours you have worked.

  • Calculates and deducts tax and national insurance.
  • Pays you.
  • Complies with all the company’s statutory requirements on your behalf including corporation tax.
  • Usually provides employer’s liability insurance, professional indemnity insurance and public liability insurance.

You can offset certain expenses if you use an umbrella company but not as many as if you trade through a limited company (personal service company).

You will have an employment contract with the umbrella company.  The umbrella company holds the assignment contract with the agency or client.  Often umbrella companies offer contributory pension schemes, medical cover and other benefits.  However, you will not be able to make contributions to the NHS pension scheme.

If you work through an umbrella company your contracts will almost certainly be treated for tax purposes as if IR35 applies to them.


There are a few umbrella companies offering health contractor ‘Tax Schemes or offshore arrangements’.  Often these arrangements are claimed to be ‘Approved Tax Schemes’ and offer locums the opportunity to pay as little as 10% of their gross pay in tax and national insurance contributions.  However the phrase ‘Approved Tax Scheme’ usually means that the tax scheme or an arrangement has been approved by a tax barrister working for the umbrella company.  It does not mean that the scheme is approved by HMRC.

HMRC are clamping down on tax avoidance schemes and have made it very clear they intend to challenge any company considered to be actively encouraging tax avoidance.

If a tax scheme appears to be ‘too good to be true’ it probably is! Instead of making a tax saving you could find yourself with a large tax bill sometime in the future!


 Agencies are generally happy to pay locums through umbrella companies.  An agency will not be held responsible for unpaid tax and national insurance if a locum uses a ‘tax scheme’ or ‘off-shore’ arrangement.  This is always the responsibility of the locums.