Contractors Cautioned on Umbrella Deductions as Firms Offer Free Payslip Audits in 2025
As the IR35 market continues to shift in 2025, more contractors are moving away from umbrella employment and returning to limited company contracting. But amid this transition, concerns remain over the conduct of some umbrella companies — particularly around payslip deductions and transparency. In response, a growing number of specialist accountants are offering free umbrella payslip audits to new clients as part of their onboarding process.
A Changing IR35 Environment
The contractor landscape has evolved significantly since the 2021 IR35 private sector reforms. After years of risk-averse end clients opting for inside IR35 determinations and forcing contractors into umbrella arrangements, signs in 2025 point to a thaw. Many experienced contractors are now securing outside IR35 contracts once again, and as a result, they’re either setting up new limited companies or reviving dormant ones.
This reversal is bringing increased scrutiny to umbrella arrangements that were used during the intervening period. And for good reason — widespread issues remain unresolved in the umbrella sector.
Ongoing Issues in the Umbrella Market
Despite repeated calls for reform, the umbrella industry still lacks dedicated regulation. While many umbrella companies operate legitimately, numerous reports over the past few years have highlighted unethical behaviour and unexplained deductions. As early as 2021, the FCSA labelled the market a “wild west” — and in many ways, that description still holds true.
Recent audits of umbrella payslips have revealed:
- Withheld or mismanaged holiday pay
- Incorrect or duplicate deductions
- National Insurance applied to non-taxable items (e.g. pension contributions)
- Charges for services not requested by the worker
- Discrepancies between gross pay and amounts reported to HMRC
Some contractors have been left hundreds or even thousands of pounds out of pocket — often without even realising it.
Free Payslip Audits Gaining Popularity
To address this, some contractor-focused accountancy firms are now offering free audits of umbrella payslips to those switching to limited companies. These checks often cover:
- Payslips and pay summaries
- P45s from the umbrella
- Employment contracts and Key Information Documents
- Verification of amounts submitted to HMRC
The aim is to ensure contractors haven't unknowingly lost income through hidden deductions or errors. If discrepancies are found, these firms often help clients raise formal complaints, recover funds, or refer matters to legal specialists.
Why This Matters in 2025
As more contractors re-enter the limited company model, understanding what happened under their umbrella engagement is crucial — not just financially, but also to ensure accurate record-keeping for future tax compliance. In some cases, deductions may have been misclassified, or income under-reported, potentially leading to issues later if left unchecked.
Contractors are advised to carefully review past umbrella engagements, especially if they suspect something was amiss. Free auditing services can offer peace of mind — and potentially, the recovery of lost funds.
Final Thoughts
While the return of outside IR35 roles is a welcome trend in 2025, the legacy of umbrella usage over the past few years continues to cast a shadow. As always, diligence remains key. Contractors making the transition back to limited company work should ensure they’re not leaving money behind — or unknowingly stepping into future compliance issues — by ignoring their umbrella past.
