By Chris Bryce, Chief Executive, FCSA
The most effective way to clean up the umbrella market is a properly designed Payroll Intermediary Licensing regime — not shifting tax liability onto employment businesses. That is the case FCSA has made consistently since the Budget 2024 umbrella proposals, and it remains our position as the detail of reform is worked through.
Why Does Liability-Shifting Miss the Target?
Moving payroll responsibility and tax liability onto employment businesses spreads the problem rather than solving it. The Budget 2024 proposals would place obligations on a very large base of agencies to address failings that sit with a comparatively small number of non-compliant umbrellas.
In my view, this expands HMRC’s enforcement burden instead of shrinking it. Chasing thousands of employment businesses is harder than regulating and licensing the umbrella providers directly.
SME agencies would feel this most acutely. Smaller recruitment firms lack the compliance infrastructure of large operators, and loading tax liability onto them creates new fraud vulnerabilities without closing the ones that already exist.
What Would a Payroll Intermediary Licensing Regime Do?
A licensing regime targets the source of the problem. Under such a model, umbrella companies would need a government-issued licence to operate, with clear conditions and an enforcement mechanism behind it.
The advantages of licensing over liability-shifting are straightforward:
- Enforcement is focused on umbrellas, where the risk actually sits.
- Non-compliant operators can be removed from the market by losing their licence.
- Compliant businesses gain a level playing field.
- Workers are protected because only licensed, standards-meeting providers can operate.
FCSA has publicly supported an Employment Rights Bill amendment requiring all UK umbrella companies to hold a government-issued licence. That amendment was framed squarely around worker protection and effective enforcement.
Does FCSA Speak for a Credible Share of the Market?
FCSA represents one of the largest employer groupings in the UK temporary-labour market. Our more than 80 Accredited Members collectively engage around 180,000 people as employees.
That scale matters when we argue for licensing. Our Members already operate to a rigorous, independently assessed standard, which demonstrates that a high-compliance umbrella sector is achievable in practice, not just in principle.
A licensing regime could draw on the frameworks that responsible providers already meet. The infrastructure for demonstrating compliance exists; the task is to make it a condition of operating rather than a voluntary badge.
Where Does This Leave the 2027 Timeline?
The Employment Rights Act 2025 confirms that umbrella companies will fall within statutory regulation from April 2027 by extending the definition of an “employment business”. This is a significant and welcome step. The question now is how the detail is designed through secondary legislation and consultation.
My message to government is consistent: use this opportunity to build enforcement that targets the right businesses. Regulation that focuses on licensing umbrellas will protect workers and reward the compliant firms that already do the right thing.
FCSA’s Position
Licensing beats liability-shifting because it targets the problem at source, protects workers and eases rather than expands HMRC’s enforcement task. FCSA will continue to press for a Payroll Intermediary Licensing regime as the framework for umbrella regulation takes shape.
Compliant businesses should not carry the cost of others’ failings. To see the standard that responsible providers already meet, explore FCSA Membership and the accredited providers on the FCSA Members register.
