If you’re a contractor or freelancer in the UK, you’ve likely come across the term “umbrella company”; the term for companies which act as intermediaries between contractors, their employment agency and the end client. 

For many entrepreneurs, it can be a big decision choosing whether to remain a sole trader, form a limited company or work via an umbrella company and have a lot of your business admin sorted out for you. 

But even once you’ve decided to go the umbrella company route, the decisions aren’t over. With so many umbrella company options out there, how do you know which one to choose? 

Whether you’re new to contracting or looking to switch providers, picking the right umbrella company can make a big difference in how you’re paid, how much tax you owe and how much admin you need to handle.

In this article, we’ll walk you through what umbrella companies do, how they work and our view on the top umbrella companies to work with in the UK this year.

What is an umbrella company?

An umbrella company is a third-party organisation that acts as an employer for contractors and freelancers working on fixed-term contracts. Instead of setting up your own limited company or working as a sole trader, you can work through an umbrella company, which will handle payroll, tax and compliance on your behalf.

Essentially, they make contracting easier by ensuring you’re paid correctly while staying compliant with HMRC’s rules.

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How does an umbrella company work?

Using an umbrella company can be a great option if you prefer a hassle-free way to work as a contractor without worrying about setting up and running your own limited company.

Here’s how it works: 

1. You sign a contract with the umbrella company.
2. The umbrella company signs a contract with the recruitment agency or end client.
3. You submit timesheets for the work you complete.
4. The umbrella company invoices the client or agency.
5. They deduct tax, National Insurance and any fees before paying you.
6. You receive your net pay through PAYE.
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What to look for in an umbrella company

Not all umbrella companies are created equal. Here are some key factors to consider when choosing the best one for you:

• Their legitimacy: Make sure they follow HMRC guidelines and are FCSA-accredited.
• Transparent fees: You want to look for a company that offers clear pricing with no hidden costs.
• Efficient payroll: Fast and reliable payment processing is super important.
• Good customer support: This will be important if you ever run into issues.
• Extra benefits: Some umbrella companies offer perks like insurance, pension contributions or holiday pay.
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The top umbrella companies in the UK in 2025

With what to look for in an umbrella company in mind, let’s take a look at five of the top umbrella companies in the UK, and the pros and cons of each:

1. Parasol Group

The pros:

• Over 20 years of experience in the industry.
• They’re FCSA accredited, meaning full compliance with HMRC regulations.
• Parasol offers a fast and efficient payroll service.
• Provides additional perks such as sick pay, maternity/paternity leave, and insurance.

The cons:

• Fees can be slightly higher compared to some competitors.

2. Brookson One

The pros:

• Well-established provider with a strong reputation.
• Offers both umbrella and limited company solutions.
• Has an intuitive online portal for tracking payments.
• Provides access to financial advice for contractors.

The cons:

• Limited additional perks compared to some rivals.

3. PayStream

The pros:

• Highly rated customer service.
• FCSA accredited for compliance and peace of mind.
• Offers both umbrella and accountancy services for contractors.
• Quick payroll turnaround times.

The cons:

• Some contractors find the fees slightly higher than other umbrella providers.

4. Danbro

The pros:

• FCSA-accredited for full HMRC compliance.
• Offers a friendly and personalised service.
• Includes additional financial services, such as pension planning.
• Provides clear, transparent pricing with no hidden fees.

The cons:

• Their online portal is not as advanced as some competitors.

5. Churchill Knight Umbrella

The pros:

• Long-standing provider with a solid track record.
• FCSA accredited for compliance.
• Provides IR35 support and advice.
• User-friendly payroll system.

The cons:

• Some freelancers have reported that support response times can vary.

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Why choosing the right umbrella company matters

Your choice of umbrella company can have a significant impact on your contracting career. When you work with a reputable umbrella company, you’ll be paid correctly, have your tax deductions taken care of and be compliant with HMRC regulations. On the other hand, choosing a non-compliant provider can lead to tax problems and hassle.

Red flags to watch out for

• Too-good-to-be-true take-home pay promises: If an umbrella company claims you can keep 80-90% of your earnings after tax, it’s likely a tax avoidance scheme.
• Lack of transparency on fees: A reputable provider should be upfront about all costs.
• Not FCSA accredited: If they’re not part of the Freelancer & Contractor Services Association (FCSA), proceed with caution.

Getting under the right umbrella

If you’re a contractor in the UK, an umbrella company can simplify your life by handling payroll, taxes and compliance - as long as you pick a reputable one. Our top umbrella company picks are all strong, reliable choices. But as always, the best one for you will depend on your exact work and needs. Do your research, compare fees and make sure you’re comfortable with the service before signing up.

We’d also recommend speaking with one of our tax experts here at Crunch, who will help you explore what the financial benefits might be of working with a particular umbrella company, and how Crunch's accounting packages could help. With the right tax advice and the right umbrella company, you’ll be able to stop stressing about your business admin and focus on what you do best - your work!

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