Treasury minister told six actions can save contractor umbrella sector from ‘existential’ crisis

James Murray MP is being lobbied to take six actions to avoid an “existential” crisis for the UK’s umbrella contractor industry.

The Treasury minister is warned in a letter -- seen by ContractorUK -- that the “collapse of the [temporary] labour supply chain” could ensue without the six.

Firstly, the umbrella company regulation plan must be delayed by two years to April 6th 2028, says the Freelancer & Contractor Services Association, which wrote the letter.

‘Only six months to implement umbrella regulation’

A consultation on the plan to make recruiters PAYE-responsible for umbrella companies (and end-users PAYE-responsible where recruiters are absent) has so far been ruled out by the government.

And even without consultation, “only six months” will be left for umbrellas and the contractor industry at large to prepare before the regulatory plan takes effect on April 6th 2026.

The FCSA’s CEO Chris Bryce spoke yesterday of the “timing concerns” he has.

‘Spring Statement 2025 may set the tone of umbrella company reform’

“It’s possible that Spring Statement 2025 on March 26th will set the tone for future umbrella company reform,” Mr Bryce began to ContractorUK.

“But all the signs are that the real action is reserved for Finance Bill 2025-26, due autumn 2025.

“Implementation…[of umbrella company regulation not even 26 weeks later] is completely unachievable.”

‘Perfect storm’

The second action Mr Murray is told to take to head off what Mr Bryce fears will be a “perfect storm” for UK contracting concerns engagement.

In two court cases cited to the minister, workers being PSCs and therefore “not employed…contributed” to alleged “gross payment fraud,” FCSA argues.

Bryce therefore believes all public sector workers (both cases involved healthcare temps) should be mandated to use “accredited” agencies and brollies.

The association says it will commission an “independent review” of labour supply, with recommendations drawn up on how to “prevent fraud”.

‘Large-scale non-compliance concerns worker engagement modes’

The review will be run by ReLegal Consulting, which has experience working with HMT and DBT on IR35 and director income support during covid, respectively.

“Large-scale non-compliance mainly concerns how these workers are engaged,” Mr Murray, the Treasury’s exchequer secretary is told by FCSA.

“[But we’re] unclear as to how [the umbrella regulation plan of changing the entity responsible for tax from the umbrella company to the recruitment business] prevents new fraud”.

‘Hypotheticals’

In July 2024, Mr Murray won some goodwill from the contractor industry, by saying ‘Labour realises the importance of the loan charge.’

An independent loan charge review has since been officially tabled (although a launch date has not been disclosed).

The Treasury minister also has the support of contractor body IPSE, for becoming the first minister appointed to the board of HMRC.

But known to dislike “hypotheticals,” Mr Murray is told in the letter by FCSA of a “problem,” before the association details the third action he should take.

‘Employment Rights Bill provisions’

“At the same time as dealing with this fundamental change in tax [for umbrella companies], the [contractor] industry must also adapt to some substantial provisions in the Employment Rights Bill,” writes FCSA.

“We are concerned that many of the options presented in the government’s various consultations seem to overlook the fact that workers will often be employed by an umbrella company -- not an agency or end-hirer.

“This is likely to lead to a whole host of issues across various industries -- some of which could be existential for our industry.”

‘Unfit for purpose’

Last night, legal expert Roger Sinclair observed to ContractorUK that notes by the FCSA accompanying its letter talk of the ‘RPC.’

The Regulatory Policy Committee (RPC) is a non-departmental advisory body that assesses the quality of evidence and analysis used to inform government regulatory proposals.

And Mr Sinclair strongly suggested that, based on the committee’s findings, the FCSA looks more than justified in telling the minister that the Employment Rights Bill constitutes a “problem.”

“Of the 23 proposed measures in the Employment Rights Bill, no less than EIGHT were rated ‘unfit for purpose’ -- and six of those were of the ‘highest impact,’” Mr Sinclair, of legal consultancy egos Ltd told ContractorUK.

“In short, the RPC’s view  -- that its ‘overall assessment of the ERB’s impact assessment is that it is not fit for purpose’ -- suggests to me that by proposing the Employment Rights Bill, the government’s approach is more akin to that of a bull in a china shop.”

‘Fair Work Agency won’t be operational until 2027 -- earliest’

The ERB also creates a Fair Work Agency, which in its letter to Mr Murray the FCSA says it “campaigned for and entirely support[s].”

But the association says the FWA (previously known as the Single Enforcement Body) will not be fully operational until 2027, “at the earliest.”

“It seems counterintuitive to implement substantive and wide-ranging legislative and regulatory changes before the new regulator is properly up and running,” FCSA tells the minister.

‘Cross-Whitehall Working Group’

Therefore for action three, Mr Bryce wants the Fair Work Agency’s remit clarified (and terms including “umbrella company” defined in law).  

Fourth, the association says Mr Murray should establish a “cross-Whitehall Working Group” to probe the temporary worker supply chain’s “various issues”.

The minister is also called to include FCSA in the FWA’s Social Partnership Board (action five) and respond to ReLegal Consulting’s incoming review (action six).

‘Umbrella companies mostly used to avoid employment costs’

A former tax inspector who used to run an umbrella company is sympathetic to the FCSA’s six action points, sent to Mr Murray in a letter dated January 8th 2025.

But shown the letter, the ex-tax official -- Carolyn Walsh, doesn’t believe it will evoke the same feeling from the Labour government.

Ms Walsh told ContractorUK: “Umbrella companies are mostly used by hirers and agencies wishing to avoid employer responsibilities along with the cost of payrolling a workforce in-house.

“There’s therefore going to be very little sympathy from Labour for any umbrellas that will be ‘tarred with the same brush,’ quite apart from the ones that are set up to commit fraud against HM Treasury, often leaving workers with tax debts to boot.”

“So I am afraid that I don’t hold out much hope of this course of action falling on anything but deaf ears. As commendable as it is.”

‘Engaging off-payroll workers fraught with difficulty’

In the letter to Mr Murray, which is signed by both Mr Bryce and ReLegal Consulting founder Rebecca Seeley Harris, an IR35 expert, the minister is reminded that engaging off-payroll workers is “fraught with difficulty.”

“Furthermore, there is a risk that some may move towards other models, such as Professional Employment Organisations, in order to avoid the [proposed April 6th 2026] umbrella regulations,” the joint authors warn.

But Walsh, who used to run a contractor accountancy firm, fears the government might argue that the market is making a self-correction, of sorts.

‘Contractors have had no voice since IR35 reform’

She says: “Like agency workers, contractors over the years have been forced to use umbrella companies or not gain work; they had no voice. And now the same potentially goes for umbrella companies [due to being deprived of a consultation].

“My expectation is that the government will expect that genuine umbrella companies will use their entrepreneurial abilities to stay in business -- much the same way as was expected of bonafide limited company contractors following IR35 reform. We all know what happened back then; umbrella companies stepped in and scooped up a lot of business. How the world turns.”

‘Serious set of problems’

The association says it will use the coming weeks before March 26th’s Spring Statement to submit further “evidence-based policy documents” to the government.  

An FCSA spokesperson said: “Whilst scrutinising [proposed] legislation we have uncovered a…a very serious set of problems for the [contractor] industry.”