The Umbrella Services Market

Understanding the challenges and opportunities in the UK umbrella company sector

What Is an Umbrella Company?

An Umbrella Companies essentially employ Agency or Freelance Workers on behalf of Recruitment Agencies or end clients.

The umbrella:

Manages payroll (PAYE)

Processes statutory deductions (Tax, NI, Student Loans)

Provides employment benefits (SSP, Holiday Pay, Pensions)

Issues a Contract of Employment to the Worker

This model simplifies Compliance for Recruitment Agencies and Clients by shifting worker management to a Third-Party Specialist.

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Market Size & Reach

600-1,200

Estimated Umbrella Companies in UK

600,000+

Estimated Contractors paid via Umbrella Companies

£4+ Billion

Market Value: Contractor Payroll processed annually

Sectors served:

Information Technology (IT)

Healthcare

Construction

Education

Logistics

Public Sector

Growth drivers:

IR35 off-payroll reforms

Public sector outsourcing

Agency contractor volume

Demand for low-risk, outsourced payroll handling

Market Challenges

There are various crucial market challenges which specifically face the Umbrella Services Market which makes independent Compliance and Certification to a comprehensive Compliance Standard such as the CPS Standard a necessity to ensure confidence, consistency and adherence to legislation and best-practice within the marketplace.

Regulatory Complexity

IR35 (off-payroll) changes in 2017 and 2021 increased demand for Umbrella Companies - but also blurred accountability between Agencies, Clients, and Umbrella Firms. Tax Compliance is critical, but not always well-enforced within the industry.

Holiday Pay Withholding Scandals

Some Umbrella Firms were found to withhold unclaimed Holiday Pay. This practice drew media attention and prompted Parliamentary inquiries.

Non-Compliance and Fraud

Incidents of Mini Umbrella Company Fraud, Tax Evasion Schemes, and disguised remuneration damaged industry reputation. The HMRC, BEIS, and the Treasury have all issued warnings to the Umbrella Services industry.

Lack of Effective Oversight

There is currently no formal Government Regulator overseeing Umbrella Companies. Some voluntary standards do exist, e.g. FSA, but are widely criticised for weak enforcement.

Government Developments

Employment Standards Taskforce was formed to review Umbrella Sector conduct.

New legislation expected: Potential statutory regulation or Licensing regime by 2026.

Agencies may soon have a legal obligation to verify Umbrella Compliance.

Types of Umbrella Companies

The general types of Umbrella Companies within the marketplace are listed below:

Type	Description
Fully Compliant	PAYE, Contracts of Employment, Full Transparency
Margin-Driven	Low Fees, Riskier Practices, Hidden Deductions
Disguised Remuneration	Operate Schemes to Reduce Tax Liability (ILLEGAL)
Mini Umbrellas	Split Companies to Avoid Tax Thresholds (FRAUDULENT)

⚠️ It is important to note, the Disguised Remuneration and Mini-Umbrellas are both Illegal and Fraudulent.

Risks to Workers & Clients

Within an unregulated market, both Workers and Clients face significant risks without the assurance of professional, certified compliance standards.

Key Risks Include:

Unpaid or Miscalculated Holiday Pay: Workers may not receive their full statutory entitlements.
Undisclosed Deductions: Deductions for “extras” or fees not clearly communicated to workers.
Lack of Grievance or Complaints Channels: Workers struggle to resolve disputes or raise concerns.
No Real Employment Protections: Absence of genuine employment rights and support.
Risk of HMRC Retrospective Enforcement: Exposure to liabilities such as the Loan Charge due to non-compliance.

Professional, certified compliance standards are essential to protect all parties and ensure fair, transparent, and lawful practices.

The Future: Compliance and Certification

The necessity and requirement for independent trusted Compliance Certification has never been greater.

There is a rising demand for:

Transparent payroll models

Genuine statutory benefit access

Employer accountability

Independent Third-party Certification Schemes like the Compliance Passport

The market is shifting away from "wild west" models towards professionalization, regulation, and trust-based branding.

Key Players & Associations

Compliance Passport

Compliance Passport is a new, independent certification standard launching in 2025+. It is designed to set a higher bar for compliance, transparency, and worker protection, providing agencies and clients with a trusted benchmark for umbrella company selection.

Large Umbrella Firms

A small number of large umbrella companies dominate Preferred Supplier Lists (PSLs) for agencies and clients. These firms are increasingly under regulatory and media scrutiny regarding compliance, transparency, and worker treatment.

FCSA

The Freelancer & Contractor Services Association (FCSA) is the most established umbrella company accreditor in the UK. However, its credibility has come under pressure due to high-profile scandals and criticism of its enforcement standards.