The director of an outsourced payroll supplier has come forward to say that fraudulent umbrella companies have repeatedly undercut her business’ operation, losing them thousands of pounds. Lauren Baker, Head of Sales and co-founder of Core Finance Management says she welcomes regulation to level the playing field and advocates for accreditation, which will also help recruitment firms to identify legitimate suppliers as they prepare to inherit responsibility for PAYE and other tax deductions in April 2026.
“Through our conversations with potential clients, we know we have been undercut and lost out on countless deals to non-compliant competitors who have lured contractors with more attractive rates,” says Baker. “Though we can’t prove it, we know that this has been happening. We’ve always prioritised keeping our fees competitively low, but we need to remain viable and simply cannot compete when the rules are being broken.”
Umbrella companies, used by recruitment firms and businesses, currently manage the payroll process for approximately 700,000 temporary workers across the UK. Lack of regulation has led to a proliferation of fraudulent schemes and activities by a minority of these suppliers, including incorrect tax deductions, pay skimming, and withholding of holiday pay.
“It is a high risk for contractors, many of whom don’t understand their tax obligations,” adds Baker. “On many occasions I’ve had to explain the legislation to contractors who genuinely believed they don’t need to pay Employer National Insurance Contributions. I’ve had to demonstrate that we were not trying to deduct more than we should be but making sure that their correct taxes were paid so that they don’t get an unexpected tax bill from HMRC down the line.”
This story is not uncommon in the umbrella company sector. The scale of the issue has been recognised by HMRC, which estimates that £500 million was lost to disguised remuneration tax avoidance schemes in 2022 to 2023.
Legislation is scheduled for April 2026, when the responsibility to account for Pay As You Earn (PAYE) and other tax deductions will transfer from the umbrella companies that employ the workers to the recruitment firms that supply the workers to an end client. Baker welcomes this move and believes it will lead to greater competition between legitimate operators.
“Regulation should level the playing field but compliant umbrella companies will need to find ways to stand out and prove that they are an honest business,” she says. “As such, as part of being regulation-ready we have recently achieved accreditation with the Payroll Compliance Authority, following a rigorous audit process, to demonstrate that we’re fully compliant with all tax and employment legislation. We’re ready to adjust any of our systems as needed, and our compliance team is working hard to make sure that we are fully prepared ahead of regulation.”
Paul Newsham, CEO of the Payroll Compliance Authority (PCA) adds: “After years of unscrupulous activities, the prospect of regulation has been widely welcomed by the honest players in the umbrella company market. However, ahead of April next year, recruitment businesses will become increasingly cautious when selecting payroll suppliers to work with. To survive, it will be imperative for umbrella companies to prove that they are fully compliant, and this is where accreditation is invaluable.”
