ESM2415 - Umbrella companies legislation: Chapter 11 ITEPA 2003- defining umbrella companies

This guidance is effective from 6 April 2026 and is subject to revision.

Section 61Y Chapter 11, Part 2 ITEPA 2003.

This measure applies to services provided via intermediaries that perform the legal obligations of an employer for tax purposes, whether or not they describe themselves as an umbrella company.

Contract of service

An intermediary will only be an umbrella company if it employs the worker. For the purposes of the measure, employment covers all engagements under the scope of Section 4 ITEPA 2003 and extends to offices and office holders within the scope of Section 5 ITEPA 2003. Section 61Y (7) ITEPA 2003 ensures that businesses deemed to be employers by Chapters 7 to 10 of Part 2 ITEPA 2003 or section 863A of the Income Tax (Trading and Other Income) Act 2005 do not meet the definition of umbrella companies.

The umbrella company

Where a worker personally provides services to a client organisation and the worker is employed by a third person, the third person will be the umbrella company. The third person must carry on a business (whether or not with a view to profit and whether or not in conjunction with any other business) of supplying labour and must not be a company in which the worker has a material interest.

Material interest in relation to a company means:

  • beneficial ownership of, or the ability to control, directly or through the medium of other companies or by any other indirect means more than 5% of the ordinary share capital of the company, or
  • possession of, or entitlement to acquire, rights entitling the holder to receive more than 5% of any distributions that may be made by the company, or
  • where the company is a close company, possession of, or entitlement to acquire, rights that would in the event of the winding up of the company, or in any other circumstances, entitle the holder to receive more than 5% of the assets that would then be available for distribution among the participators but
  • the worker is to be regarded as not having a material interest in a company if that interest is a result, to any extent, of any arrangements the main purpose, or one of the main purposes, of which is to secure that joint and several liability does not apply

The umbrella company will be the party that has a direct contractual relationship with the worker.

Personally providing services to the client

In the context of the measure, a worker is the person who provides their services to the client, under a contract with the umbrella company. A worker is providing their personal services when they are working for the client.