Umbrella companies were spawned following the introduction of IR35 back in April 2000 and became hugely popular after the Management Service Company Legislation in April 2007. They are seen as one of the last remaining 'compliant' payroll methods, taxing contractors fully under PAYE, after the deduction of allowable business expenses.

Nowadays, there are over 100 umbrella providers in the UK employing in excess of 200,000 freelance contractors. Recruitment agencies love umbrella companies because they reduce payroll administration. Contractors love umbrellas because they generally take home more money than straight PAYE at the agency or client. HMRC are somewhat on the fence - whilst they have recently considered legislating against them, they are also aware that if umbrella providers didn't exist, more contractors would almost certainly work through their own limited company and therefore pay less in combined taxes.

So there you go, umbrella companies in a nutshell. Now that you're an umbrella company expert, you can head over to the online forum and tell us what you think of them. In case you were wondering, I think umbrella companies are great, you hear me GREAT. So there, off you go and join one...