The Ex-Umbrella Director’s Dark Disclosures

Written by Sophie Turner. The following is based on the experiences of an ex-umbrella company director who has requested anonymity.

The Hidden Struggles of Running a UK Umbrella Company

Running an umbrella company in the UK should, in theory, be a straightforward business: provide a compliant payroll solution for contractors, ensure taxes are paid, and support workers in flexible employment. But after years in the industry as a director and owner, I can tell you — it’s anything but simple. What looks like a supportive, regulated space is actually a monopolised, cash-draining minefield where power is skewed heavily in favour of recruitment agencies and accreditation bodies. Here’s what I learned the hard way.

The Gatekeeper: FCSA Accreditation

Before an umbrella company can even speak to most recruitment agencies, especially those supplying staff to the NHS or government contracts, you’re expected to be accredited by the FCSA (Freelancer & Contractor Services Association). But here’s the kicker: FCSA won’t consider your application unless you’ve already been trading for a set period. That’s right — you can’t get your foot in the door unless you’ve already walked through it. It’s a closed-loop system that essentially blocks new, small, or innovative companies from entering the market. This creates a monopolistic environment dominated by a handful of long-established players.

The “Alternative” Isn’t Much Better

Without FCSA accreditation, your only real option is to go through Professional Passport. While Professional Passport is technically another route into the market, their accreditation process comes with a hefty price tag — £14,000+ upfront. That’s just for a chance to compete. And remember, this cost comes before you’ve made a single pound in revenue.

The Agency Demands Don’t Stop There

Let’s say you manage to get accredited — by FCSA, Professional Passport, or another route — and you start approaching recruitment agencies. You’d expect that to be the hard part done. Unfortunately, the real costs are just beginning.

Recruitment consultants will often demand up to 7% — sometimes even more — of the contractor’s weekly or monthly invoice value. This isn’t a fee to the contractor; it’s a cut the consultant wants for giving you access to supply the worker.

Now, if you're running a standard PAYE umbrella, this demand is completely unrealistic — the margins simply aren't there. Even if the contractor is on a tax-efficient product, agreeing to this level of commission would often consume up to 50% of your total margin, depending on the worker’s fee and the take-home pay they’re expecting. You're left with very little room to operate, let alone build a sustainable business.

Forced into a Corner: The Rise of “Tax Products”

Given these crushing overheads, it’s no surprise that many umbrella companies are pushed toward “tax products” — alternative structures sold as HMRC-compliant but ultimately high-risk. These are pitched by product providers as legal and safe, but I’ve seen firsthand how within 1 to 2 years, HMRC can (and often does) pursue these schemes. The end result? Enormous backdated liabilities, closure orders, and ultimately liquidation of the umbrella company.

The recruitment agencies want you to be using a tax product so they can get the umbrella to do advances and offer credit to the contractors — services that aren’t possible under standard PAYE models. But these services cost money. As the umbrella owner, you’re not making any money because it’s all going out — to consultants, to agencies, to product providers, to cover the costs of these extras. Product providers charge hefty fees to use their tax product structures, and by the time everyone else has been paid, you’re no better off than you would’ve been running a plain, compliant PAYE umbrella — just with ten times the risk.

Agencies, Conduct Regs & A Legal Grey Zone

What’s most frustrating is that agencies often claim contractors must use FCSA or Professional Passport-accredited umbrellas, implying there’s a legal obligation. But that simply isn’t true. According to the Conduct of Employment Agencies and Employment Businesses Regulations (2003), recruitment agencies cannot force a contractor to use a specific provider.

This is an industry-wide secret — contractors don’t know their rights, and agencies exploit this lack of awareness. I’ve tried raising this issue, but it’s swept under the rug. The system continues to reward gatekeeping, not transparency.

Government Contracts and Closed Networks

Most of these agencies — the ones demanding cuts and fees — are supplying talent to public sector bodies like the NHS and government departments. That makes the landscape even more difficult to challenge. There's an added layer of caution when dealing with public funds, yet ironically, these agencies are also the ones creating the most restrictive and financially unsustainable conditions for umbrellas.

And it goes deeper. The consultants themselves — the people negotiating these arrangements and demanding 7% here, £1,000 there — are profiting personally from these deals. In many cases, recruitment companies are using the money taken from umbrellas to fund commission structures, paying consultants tens of thousands of pounds each month as a bonus on top of their salaries. It’s a broken model where everyone gets paid — except the umbrella company actually delivering the service.

And even though you’ve done all that — paid the onboarding fee, met their demands, offered credit, used their preferred tax product — you’re still at risk of the consultant moving your contractors elsewhere so they can get paid on the same deal again. You lose out twice: they take your contractors, move them to a different umbrella for a "better deal," and get double commission. It’s a churn-and-burn game where loyalty means nothing, and the only winners are the consultants gaming the system.

Conclusion: A System That Doesn't Serve Its Purpose

After years in the industry, I reached a breaking point. The numbers didn’t add up. The risk was too high. The system seemed rigged from the start. The umbrella industry — originally designed to offer a flexible, compliant solution — now often forces new entrants to the brink through exorbitant fees, misrepresented risks, and monopolised access.

I left the industry not because I couldn’t run a compliant and ethical business, but because the system makes that nearly impossible. Until there's greater regulatory balance and more transparency, I’d advise anyone considering launching an umbrella company to think twice — and then think again.