HMRC's guidance notes on umbrella company best practice, published in April 2025, clearly outline the expectations that umbrella payroll service providers should compete based on lawful practices, rather than on illegal schemes that provide an unfair advantage.
With intensifying scrutiny on tax avoidance in the sector, recruitment agencies that engage with umbrella payroll companies need to be mindful of both the growing compliance risk and the commercial opportunities it may present.
The guidance notes stress that umbrella companies must operate entirely within the law, applying PAYE correctly, avoiding disguised remuneration schemes, and steering clear of mini-umbrella fraud. Pay must be based on actual hours worked, meet National Minimum Wage thresholds, and deductions must be transparent and legal.
What This Means for Recruitment Businesses
1. Enhanced due diligence is essential
Checking and confirming that umbrella providers are genuinely running compliant PAYE payroll models is a must for all recruitment businesses that engage umbrella payroll providers. Failing to conduct thorough due diligence on suppliers will leave agencies exposed and at serious financial risk, particularly as HMRC intensifies its scrutiny of labour supply chains.
2. Review Preferred Supplier Lists (PSLs)
Now is the time to review and update PSLs and remove umbrellas that might promote or operate tax-avoidance schemes or questionable business structures. Recruitment businesses should only work with compliant umbrella companies with proven payroll transparency and ethical practices.
3. Build trust with candidates and clients
Umbrella partners that operate transparently and lawfully improve the candidate experience and strengthen client trust. Agencies working with such partners gain a competitive edge in a reputation-driven market.
Champion Contractors' Perspective
At Champion, we welcome HMRC's focus on ethical competition in the umbrella sector.
For recruitment businesses, choosing umbrella partners who prioritise compliance isn't just about avoiding risk; it's about building a robust, future-ready labour supply chain.
Partnering with compliant providers today means protecting your brand and future-proofing your recruitment business for the regulatory changes ahead.
For more information about how Champion can help you prepare for the legislative changes in 2026, call us on 0161 703 2549 or email info@championcontractors.co.uk.