FCSA welcomes the draft legislation published on 21 July 2025, which will feature in the Government’s 2025–26 Finance Bill. Many of FCSA’s deepest concerns with the original proposals have been addressed – and in some cases, taken off the table.
The legislation outlines how HM Treasury and HMRC intend to implement the Chancellor’s Budget announcement that will bring significant changes to the contingent labour market. The stated policy aims will be achieved by making recruiters jointly and severally liable for any unpaid tax, following a “Statutory Debt Transfer (Contingent Liability) Model” as recommended by Rebecca Seeley Harris and supported by FCSA in March 2025. Recruiters are not being deemed the employer.
This approach means there will be no significant disruption to the operations of compliant umbrella companies. No repapering exercises or software changes are required as previously feared. Crucially, workers themselves will continue to benefit from umbrella employment, and the potential huge disruption to that has been averted.
There will, however, be significant disruption for the Payroll Pirates – and rightly so. Joint and several liability means that, for the first time, recruitment businesses will be liable for any unpaid taxes of a non-compliant payroll intermediary. This significantly undermines the Payroll Pirates’ business model, as it will deny them access to workers. Recruiters and end-hirers will inevitably move to manage liability risks.
Defining the term “umbrella company” was an unenviable task, and we are pleased to see a wide definition that includes employment businesses and intermediaries directly employing workers. This is separate from, but a similar approach to, Clause 34 of the Employment Rights Bill, which brings umbrellas within the definition of “employment business”. FCSA is pleased to see broad alignment between these two definitions.
The draft legislation also creates the term “purported umbrella”, which appears to be designed to catch both the Payroll Pirates and mini-umbrella company fraud schemes. This definition is very broad and should close compliance loopholes.
We believe the draft legislation largely hits the right balance between targeting undesirable behaviour while allowing compliant businesses to continue to trade. However, we do have some concerns that there may remain opportunities for non-compliance, which we will highlight in this response.
The new rules are set to come into effect from 6 April 2026, and FCSA welcomes this. We understand the legislation is still in draft form and subject to technical consultation until 15 September 2025.
