Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Labour Provider Guidance

Employment Intermediaries and Umbrella Companies: Intermediary Models

There are many different types of employment intermediary models but some of the more common ones are:

  • Umbrella Companies - these are businesses interposed between the employment agency and the worker which act as the employer of the workers who will still find their work through the agencies. Traditionally, umbrella companies exploited/manipulated the tax and NICs rules which provided that certain payments for travel and subsistence could be paid free of tax and NICs. This reduced the tax and NICs payable to HMRC. Legislation was changed with effect from 06 April 2016 which should mean this exploitation/manipulation is no longer possible (ESM5520)
  • Some intermediaries treat workers who HMRC might consider to be employed as self-employed. This results in reduced tax and NICs payments being paid to HMRC. As a result the workers may lose some employment rights. Amendments were made to the agency legislation from 06 April 2014 to make this more difficult (ESM2029)
  • Personal service companies - where the worker is engaged through their own limited company and often remunerated in part by dividends. From 06 April 2017, there are changes to the way the current intermediaries legislation (known as IR35) is applied to off-payroll working in the public sector.
  • Mini umbrella companies – this model sees the formation of lots of individual companies, often with foreign nationals as directors, which are managed by an overarching business and seek to exploit the Employment Allowance and the VAT Flat Rate Scheme (FRS). Legislation was introduced from 1 April 2017 to restrict the VAT FRS rate for traders of limited costs, such as labour only businesses.
  • Managed service companies (from ESM3500) - any personal service company might be a managed service company (MSC). If it is there is tax and NICs legislation that treats income like share dividends as earnings and allows us to transfer the MSC’s irrecoverable PAYE income tax and Class 1 NICs to specified persons that include but are not limited to the MSC director, the MSC provider and their directors. Where workers services are provided to clients through a service company and the arrangements are set up and managed by a business which promotes or facilitates the use of companies to provide those services, the MSC legislation is likely to apply.
  • Offshore intermediaries provide the services of UK workers, but claim they are not subject to UK tax and NICs legislation because they are located outside the UK. They claim to have no presence, place of business or residence in the UK. Instances of this model should have reduced following the introduction of the offshore intermediaries legislation in April 2014 – see NIM33750 and ESM2039

Further details on all these models can be found in the employment intermediaries awareness and advanced learning modules.


Due to the complexity of these cases, they can be lengthy and labour intensive. A lot of research is required to work out the various layers of the chains and to establish what practices are being implemented by the intermediaries.