As the UK defence industry gears up for rapid expansion, more companies are turning to contractors to meet urgent project demands. With defence sector spending set to rise significantly and major organisations like BAE Systems, Rolls-Royce, and Raytheon UK scaling up operations, the need for flexible, skilled professionals has never been greater.
But why is this shift happening now? And what does it mean for defence contractors inside IR35 and the umbrella companies that support them?
Defence Projects & Contractor Demand in 2025
The Labour government has reaffirmed ambitions to raise defence spending to 2.5% of GDP by 2027, with an additional 32.2bn proposed for 2025/26 as part of wider military investment plans.
They’ve ringfenced at least 10% of the MoD’s equipment budget for advanced tech like drones, AI-enabled systems, and innovation in defence manufacturing.
These funding injections are driving large-scale procurements in areas such as submarines, missiles, and AI systems, projects that demand speciality skills and rapid scaling. Contractors offer the flexibility to meet urgent timelines and avoid long-term hiring constraints.
Common Roles in Demand
Not sure where your role fits into all this? These are some of the most in-demand positions right now:
- Systems engineers
- Avionics technicians
- Cybersecurity specialists
- Manufacturing consultants
- AI and automation developers
- Software developers
Addressing the Defence Sector Skills Shortage
The UK defence industry is also facing a significant skills shortage, impacting its ability to maintain operational capabilities and compete with other sectors for talent. By using contractors and drawing on a flexible workforce of specialist companies, the defence sector can access niche expertise.
What Does Umbrella Employment Mean in Practice?
Umbrella Employment, or working through an umbrella company, is a form of employment where a contractor essentially becomes an employee of an umbrella company, who then manages their payroll and tax deductions.
In this setup, the umbrella company acts as an intermediary between the contractor, the agency (if there is one), and the end-client. The umbrella company handles the administrative burden of employment, including calculating and deducting taxes and National Insurance contributions.
What Are the Benefits of Umbrella Companies for Defence Contractors?
Whether you’re wondering how to get paid as a defence contractor in the UK or how to navigate defence contracts and IR35, umbrella employment offers key advantages:
- Guaranteed IR35 compliance
- Reliable payment
- Employment benefits
- Less admin
- Client reassurance
IR35 Rules & Umbrella Options for Defence Contractors
Since the 2017 and 2021 off-payroll working reforms, many MoD-affiliated defence projects fall inside IR35. Evaluating status, managing tax deductions, and complying with HMRC rules is now the client’s responsibility, making umbrella companies for MoD projects a more attractive option for many contractors.
For defence employers, working with umbrella company contractors also reduces risk and admin. With payroll, tax and deductions handled externally, it simplifies compliance.
Crucially, engaging workers through a compliant umbrella can also transfer much of the off-payroll liability away from the client. This reduces the risk of costly IR35 errors, as the umbrella assumes responsibility for correct PAYE deductions and tax payments, providing an additional layer of protection for the hiring organisation.
Why Choose Danbro Umbrella?
At Danbro Umbrella, we work closely with contractors in the UK defence industry to ensure their payroll is handled accurately, compliantly and on time. We manage:
- All PAYE and National Insurance deductions
- Holiday pay, pension contributions & statutory benefits
- Real-time reporting and payslips
- End-of-year tax documents
Whether you’re joining a MoD-backed programme or working with a major prime contractor, we provide the peace of mind you need to focus on the work.
Ready to Start Your Next Defence Contract Inside IR35?
If you’re looking for a reliable umbrella company for MoD projects that understands the defence sector, Danbro is here to help. Speak to our specialist team today and discover how we can make contracting in the defence industry simpler, safer, and more rewarding.
