What Is an Umbrella Company and How Does It Work?

What is an Umbrella Company?

An umbrella company is a business structure designed to simplify contracting for individuals who supply their services to clients (often via an agency) without having to set-up and manage their own personal limited company. In essence, you provide services to your client under an umbrella company structure, which handles invoicing, tax, payroll and admin on your behalf.
By choosing an umbrella company solution you avoid many of the administrative burdens associated with setting up and running your own personal limited company.

Why Choose an Umbrella Company?

1. Quick and Simple Setup

One of the major advantages of an umbrella company is how little setup you need. There’s no need to register a new company name or open a dedicated business bank account – the umbrella company handles the infrastructure so you can start working as soon as you’re needed.

2. Compliance Made Easy

When you contract via an umbrella company, much of the compliance burden is transferred away from you. The umbrella takes care of tax, VAT, payroll, ensuring you’re expenses are within Revenue guidelines and all related matters. This is particularly helpful if you’d rather focus on your contracting role than on bookkeeping and accounting.

3. Insurance Cover

Using an umbrella company often means you benefit from insurance cover. Public liability, employers' liability, and professional indemnity insurance are included under the umbrella company, providing you with peace of mind.

4. Suitable for Short to Medium-Term Contracts

An umbrella company solution is ideal if you’re just starting out as a contractor, working on assignments of limited duration, or simply need a straightforward solution without the responsibilities of a full personal limited company structure.

How Does an Umbrella Company Work?

Here’s a simplified breakdown of the process:

1. You carry out your contract work under an umbrella company and are in contract with an agency or directly for a client.
2. The umbrella company invoices your agency/client for the services you provide.
3. When payment is received, the umbrella company deducts tax, PRSI (and USC if in Ireland) and any expenses permitted under Revenue Guidelines.
4. You receive a payslip and the net payment is transferred to your personal bank account.
5. If you operate under a Director Umbrella Company, we will also manage the Income Tax Return requirements for you. For more information on this check out this blog.

Types of Umbrella Company Solutions

At Icon Accounting we distinguish between two main umbrella company solutions for contractors:

PAYE Umbrella Company

• You pay Class A PRSI under the umbrella company set-up. This means you retain your contribution towards the illness benefit.
• Ideal for short-term contracts or for contractors who want minimal administrative responsibility.
• The umbrella company handles payroll, tax, PRSI, etc.

Director Umbrella Company

• You become a director of the umbrella company and pay Class S PRSI under the solution.
• Offers greater tax efficiency in certain cases (e.g., if you plan to claim business-related expenses).
• Suitable for medium-term contracts or contractors who may require more flexibility but without setting up a fully separate limited company.

When is an Umbrella Company the Right Choice?

An umbrella company may be the best choice if you:

• Are a contractor starting out and wish to avoid the hassle of forming a limited company.
• Are working on assignments of relatively short duration and don’t wish to bear the full admin of a personal limited company.
• Prefer the simplicity of a payroll/contracting solution rather than handling tax filings, company accounts, VAT and bank account management.
• Are not seeking to recruit employees or build a contracting business in your own name (because umbrella models typically restrict hiring others).

On the flip side, if you plan to operate a business long-term, recruit staff, claim significant business expenses or wish to purchase business assets, or want full control of your company finances — a personal limited company solution may make more sense for you.

Benefits at a Glance

• Fast onboarding and reduced setup overhead.
• Payroll, tax and compliance handled by the umbrella provider.
• Insurance cover included
• Clear and straightforward payslip and payment process.
• Good choice for short to medium term contracting with minimal administrative burden.

Choosing the Right Umbrella Company Partner

Not all umbrella companies are the same, so when selecting an umbrella provider consider:

• Are they fully compliant with local tax/PRSI regulations?
• How transparent is their fee structure?
• Do they include insurance and liabilities?
• Do they complete your income tax return in their management fees?
• What level of service and support do you want and what do they offer (e.g., dedicated account manager, app which allows you to complete all contracting requirements)?

At Icon Accounting we provide a fully managed umbrella solution — from invoicing through to payslip and payment — freeing you to focus on your contracting roles. If you’re ready to start contracting through an umbrella company, the process is straightforward. Just complete our online starter form and one of our team will guide you through the setup.