How to Invoice as an Umbrella Contractor

Working through an umbrella company is common for contractors who want simplicity or who have been placed inside IR35. But the invoicing model is different from running your own limited company, and many contractors do not fully understand what is happening behind the scenes.

How umbrella invoicing works

When you work through an umbrella company, the invoicing chain typically looks like this:

1. You complete work for an end client
2. You submit timesheets to the umbrella company
3. The umbrella company raises an invoice to the recruitment agency (or directly to the client)
4. The agency invoices the end client
5. Once paid, the umbrella company pays you as an employee, after deducting PAYE tax, National Insurance (both employer and employee), and their margin fee

You are an employee of the umbrella company. You do not raise invoices. Your income is a salary, and you receive payslips, not invoice receipts.

What you should track

Even though you are not invoicing, you should keep records of:

• Your contract rate (the day or hourly rate agreed with the agency)
• The umbrella company's margin fee
• The employer's National Insurance deducted from your assignment rate
• Your payslips and the net pay you actually receive

Comparing your contract rate to your take-home pay lets you calculate your effective rate and assess whether umbrella working is financially worthwhile compared to alternatives.

When you might want to raise your own invoices

If your contract is outside IR35 — confirmed either by a Status Determination Statement (SDS) or by working in the public sector under pre-April 2021 rules — you may be eligible to operate through your own limited company instead. In that case, you raise the invoices, and after legitimate business expenses, you are taxed only on what you extract as salary or dividends.

Umbrella vs limited company: a simplified comparison

Factor	Umbrella	Limited Company
You raise invoices	No	Yes
IR35 exposure	N/A (already inside)	Depends on contract
Admin burden	Low	Higher
Take-home pay	Lower (employer NI + margin)	Potentially higher
Expenses	Limited	Broader allowable expenses

Key takeaways

• Umbrella contractors do not raise invoices — the umbrella company does
• You are paid as an employee; your income is salary, not invoice receipts
• Track your contract rate, umbrella margin, and payslips to understand your true effective rate
• If your contracts are outside IR35, a limited company structure gives you more control and typically higher take-home pay

If you are considering moving from umbrella to your own limited company, Invoa makes it straightforward to start raising professional, HMRC-compliant invoices from day one.