HMRC has stepped up its compliance activity, and umbrella contractors are firmly in the spotlight. If you work through an umbrella company, the rules you operate under haven’t changed — but the level of scrutiny has. HMRC is targeting tax avoidance, disguised remuneration, and non-compliant payment practices across the temporary workforce.
For contractors, this shift matters. The wrong umbrella company can expose you to risk even if you’ve acted in good faith. Below is a clear breakdown of what’s happening, why HMRC is tightening the reins, and what you should do now to stay safe.
Why HMRC Is Cracking Down
HMRC has been dealing with a rise in non-compliant umbrella companies over the past few years. Key problem areas include:
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Mini-umbrella company fraud
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Unreported PAYE liabilities
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Kickbacks and unlawful deductions
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Disguised remuneration schemes (e.g., loans, advances, credits)
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Incorrect holiday pay practices
The agency’s compliance push is designed to protect tax revenue and safeguard workers who may not realise they are being paid through risky structures.
What HMRC Is Focusing On
1. Disguised Remuneration Schemes
HMRC has warned that loan-based or “part salary, part something else” models are illegal. If an umbrella company offers unusually high take-home pay, introduces a second payment source, or claims to “reduce your tax legally,” it’s a red flag.
2. Payroll Transparency and PAYE Accuracy
Umbrella companies must pay contractors through standard PAYE — nothing exotic. HMRC is actively checking for correct deductions, accurate payslips, and full payment of employer liabilities.
Read, How Do Umbrella Company Payslips Work? Decoding Your Deductions in Plain English for a detailed guide.
3. Holiday Pay Compliance
Following high-profile disputes over retained holiday pay, HMRC and the Department for Business, Energy & Industrial Strategy have stepped up enforcement. Umbrellas must show clear holiday accrual and correct payments.
4. Mini-Umbrella Company Fraud
Some umbrellas split workers across multiple small companies to claim tax incentives. HMRC treats this as fraud and has already blocked thousands of such entities.
What Contractors Need to Watch Out For
Even if you are paid correctly, you can be at risk if your umbrella company doesn’t follow the rules. Warning signs include:
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Higher-than-normal take-home pay claims
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Multiple payments from different entities
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Payslips that don’t show employer costs
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Confusing umbrella margins or unexplained deductions
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Pressure to sign contracts quickly
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No Key Information Document (KID)
Trust your instincts if something feels off.
Have a read of What is an Umbrella Margin? Where Your Money Goes: Explained for clarity on deductions.
How This Crackdown Affects You
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More documentation checks: Agencies and umbrellas are tightening onboarding, providing clearer breakdowns of pay and stricter ID checks.
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Changes to umbrella processes: Compliant umbrellas are improving payroll systems, payslip clarity, and transparency.
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Dodgy umbrellas will disappear: HMRC’s crackdown will push non-compliant providers out of the market — but ensure you’re not caught in one before it’s too late.
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Responsibility still rests with you: Contractors are expected to make “reasonable checks” on any umbrella used. Claiming ignorance won’t always protect you from tax liability if your umbrella is non-compliant.
What You Should Do Now
1. Review Your Current Umbrella Company
Check your payslips, contracts, and payment structures. Ensure everything aligns with standard PAYE rules.
2. Demand Transparency
Always get:
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A detailed payslip
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A clear explanation of employer costs
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A Key Information Document (KID)
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Written confirmation of holiday pay handling
3. Avoid Any Umbrella Offering “Higher Take-Home Pay”
These claims almost always hide tax avoidance models.
4. Use a Trusted, Accredited Umbrella
Look for umbrellas audited by recognised bodies such as the Freelancer and Contractor Services Association (FCSA) or Professional Passport. These accreditations aren’t perfect, but they add meaningful protection.
Also refer to our Top 10 Umbrella Companies for accredited providers.
5. Report Anything Suspicious
HMRC encourages contractors to report disguised remuneration schemes. This protects you and helps clean up the sector.
The Bottom Line
HMRC’s compliance crackdown is reshaping the umbrella industry. The goal isn’t to target genuine contractors — it’s to eliminate bad actors that put workers at risk.
If you stick to a reputable umbrella company, monitor your payslips, and avoid unrealistic take-home pay promises, you will be on the right side of these changes.
