The government has confirmed that the umbrella company industry will finally be regulated, with new legislation due to come into effect in 2027.
The news was outlined in the official Employment Rights Bill implementation roadmap (PDF), published on 1st July 2025, which sets out the timeline for delivering a package of employment reforms between now and the end of 2027.
According to the document, a consultation on umbrella company regulation will take place in Autumn 2025, with legislation to follow in 2027.
Why is regulation being introduced?
The umbrella industry has grown rapidly in the wake of reforms to off-payroll working rules in both the public and private sectors.
Thousands of contractors, unable to work via their own limited companies, have been pushed into umbrella arrangements – often at short notice and with little transparency.
Despite the scale of the sector, which handles billions of pounds in contractor income each year, there has been no formal regulatory framework.
This has allowed a small number of unscrupulous operators to exploit workers using disguised remuneration schemes and unlawful deductions.
HMRC has already identified over 100 tax avoidance schemes operating under the banner of umbrella companies.
The Loan Charge scandal highlighted the devastating long-term impact these arrangements can have on workers who are left personally liable for unpaid tax.
Umbrella industry boomed following 2007 MSC clampdown
Remarkably, the umbrella industry has operated for so long without any form of statutory regulation.
Umbrella companies became widespread following the Managed Service Company (MSC) legislation introduced in 2007, which shut down many composite schemes overnight.
In the years since, umbrella working has become the default model for tens of thousands of flexible workers. Yet the sector has remained largely unregulated, despite repeated warnings from compliance experts and professional bodies.
Much-needed regulation has been a long time coming
Rebecca Seeley Harris, of ReLegal Consulting, told us:
I am very encouraged that the Government is finally going to regulate the umbrella company industry. I started campaigning back in 2022 under hashtagFairUmbrella campaign for the regulation of the industry and the protection of the worker. Since then, I have learnt a lot about the industry, and recently I was commissioned to write a policy paper on the Umbrella Reforms. I again reiterated the need for regulation alongside the tax policy for joint and several liability.
As part of regulation I would like to see an accreditation body working under the auspices of the Fair Work Agency to provide a further compliance standard. Hopefully, with all these new measures, the Government can start to get on top of the non-compliance.
No room for non-compliant companies to operate unchecked
Ciaran Woodcock, commercial director at SG Umbrella told us:
I believe these changes will be welcomed across the industry as a necessary step to improve its reputation, which has been damaged by the behaviour of non-compliant umbrella companies.
Most compliant umbrella companies invest significantly in demonstrating their compliance, whether through accreditations such as FCSA or Professional Passport, or real-time auditing provided as part of the SafeRec accreditation.
This shows that the infrastructure already exists for the government to successfully implement regulation in the sector.
The difference between a compliant umbrella company like SG Umbrella – which invests thousands of pounds annually in both FCSA and SafeRec and non-compliant operators is stark.
In my view, these proposed changes will leave no room for non-compliant companies to operate unchecked, offering greater protection for both recruitment agencies and contractors, which can only be a good thing.
An inherent need for meaningful oversight
Sam Cox, Director of UmbrellaSure, a sub-brand of our long-term partner Qdos, provided exclusive comment today:
Regulation is long overdue. It was promised nearly a decade ago by the previous government and, following the introduction of the off-payroll rules, the number of flexible workers operating via umbrella companies has grown significantly – highlighting the need to prevent non compliant operators from luring workers into operating via tax avoidance schemes.
While regulation itself will arrive in 2027, what this looks like in practice remains to be seen. There’s no doubt that the consultation on the issue this Autumn will have a big say on how regulation is enforced and what it means for umbrella companies.
Ultimately, there’s an inherent need for meaningful oversight of an industry responsible for billions of pounds of income for UK workers.
What happens next?
The government has confirmed that the umbrella company consultation will take place in Autumn 2025. Legislation is expected to follow in 2027, although the precise form and enforcement mechanism remain to be seen.
As ever – and at the risk of using a well-worn phrase – the devil will be in the detail.
The official guidance notes that the government will work with stakeholders to develop “a proportionate and effective regulatory framework.”
For more information, see the Gov.uk roadmap to deliver the Employment Rights Bill.
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