Umbrella Companies to Face Regulation by 2027

Government Prepares to Regulate Umbrella Companies in 2027

UK contractors can expect a major shift as the government confirms regulation for the umbrella company sector, set to come into force with new legislation in 2027. After years without statutory oversight, this move targets improved governance and transparency across a vital part of the flexible workforce supply chain.

Key Developments and Timeline

• Official Roadmap Released: The July 2025 Employment Rights Bill roadmap sets the course for a consultation on umbrella company regulation in autumn 2025, leading to formal legislation in 2027.
• Industry Growth: The sector expanded rapidly after public and private sector IR35 (off-payroll) rules changed, driving thousands of contractors to operate through umbrella companies.
• Urgent Need: Despite managing billions in annual contractor income, the sector’s lack of formal regulation left gaps for exploitation and non-compliance.

Why Oversight Is Required

A combination of legislative loopholes and market expansion has created opportunities for a select few unscrupulous operators. Disguised remuneration schemes and unauthorised deductions have placed workers at risk, with over 100 tax avoidance operations flagged by HMRC. The fallout from cases like the "loan charge" scandal has emphasised the serious risks faced by contractors working through unregulated agencies.

Historical Perspective and Current Pressures

• Legacy of MSC Legislation: The industry's boom followed the 2007 Managed Service Company legislation, which ended several composite models and shifted contractors into umbrella arrangements.
• Default Model: For many IT professionals and other flexible workers, umbrella companies have become the default choice, even as sector regulation lagged behind.
• Professional Concerns: Professional bodies and compliance experts have repeatedly raised alarms about the lack of effective oversight, given the scale and complexity of payroll management involved.

Expert Insights

Rebecca Seeley Harris (ReLegal Consulting) commented:

I am very encouraged that the Government is finally going to regulate the umbrella company industry. I started campaigning back in 2022 for the regulation of the industry and the protection of the worker ... I again reiterated the need for regulation alongside the tax policy for joint and several liability ... Hopefully, with all these new measures, the Government can start to get on top of the non-compliance.

Sam Cox (UmbrellaSure, Qdos) added:

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 ... The consultation this Autumn will have a big say on how regulation is enforced and what it means for umbrella companies.

What to Expect for Contractors

• Consultation Phase: The government will engage stakeholders in autumn 2025 to shape a proportional and effective framework.
• Legislation to Follow: Enforced rules are planned for 2027, but details on what compliance and oversight will look like remain under discussion.
• Priority on Worker Protection: Key goals include increased transparency, clearer employment rights, and a reduction in abusive business practices among umbrella providers.

Key Dates	Event
Autumn 2025	Umbrella company consultation begins
Throughout 2026	Policy development and stakeholder engagement
2027	Regulation to be implemented

Next Steps:
• Contractors should monitor developments closely, especially during the consultation window, and engage with professional bodies or legal advisors as necessary.
• Employers and agencies must maintain compliance readiness and begin reviewing their supplier due diligence processes.

For more information, visit the [Gov.uk roadmap for Employment Rights Bill](https://www.gov.uk/government/news/roadmap-unveiled-to-boost-rights-for-half-of-all-uk-workers-and-provide-certainty-to-employers).