Eleven contractor outfits write to Rachel Reeves over umbrella company tax compliance plan

Eleven contractor organisations critical of the umbrella company tax compliance plan have written a letter to Rachel Reeves.

The 11 tell the chancellor that they want to “partner” with HMRC to deliver her plan to tackle “payroll piracy,” but only by using umbrellas’ PAYE references.

If the “government cannot partner with us,” then the organisations “simply ask” for “enough time” to put HMRC’s plan in place, says the FCSA.

The letter’s lead author, the Freelancer & Contractor Services Association (FCSA) cites “five months” to implement it, down from six months previously.

‘Steps to improve umbrella market transparency’

The FCSA’s letter, which is signed by the REC, APSCo and Professional Passport, coincides with “steps” to “improve” umbrella market “transparency”.

To be spelt out in the House of Commons today, the steps were enquired about in a question to the chancellor by Lib Dem MP Tom Morrison.

The MP may receive only a recap of the tax plan, or umbrella regulation, but he also asked last week about “excessive fees” and “improper tax arrangements.”

‘Listened to and understood’

In an update last week about their letter to Reeves (dated April 16th), the FCSA reassured, by saying that the 11 organisations had been “listened to and understood”.

The association previously wrote to the Treasury about the same issue of shifting the PAYE responsibility of umbrellas to recruiters in January 2025.

FCSA’s Chris Bryce went on to condemn the plan as “misguided,” but a source close to the FCSA last night told ContractorUK that a reply was received.

‘Umbrella-agency space doesn’t have much time’

That makes April 16th’s letter to the chancellor a follow-up, albeit now backed by 10 more outfits “who’ve figured out we haven’t got much time”, the source says.

“There could be… as little as five…months for the market to prepare for the changes, which is insufficient,” the FCSA states in its letter to Reeves, adding:

“All parties will need adequate time to address any contractual changes to ensure that pay for workers is not disrupted.”

‘Two-year delay to umbrella tax compliance plan needed’

Originally, April 6th 2028 was recommended by Mr Bryce, the FCSA’s chief executive, as a preferred commencement date for the tax compliance plan.

Likewise, the letter to the chancellor (whose Spring Statement 2025 on March 26th did not act on the recommendation) calls for a “two-year delay.”

A few umbrella company veterans say there’s little point in getting into specific dates except for April 6th 2026.

‘Trying to interpret HMRC’s intentions is futile’

“Finally, [umbrella company guidance like this on April 8th indicates] HMRC is showing an improved understanding of what an umbrella company is,” began SG Umbrella’s Ciaran Woodcock.

“I was speaking with one of our agency partners who believed this [guidance] to be a positive sign for the industry.

“[They even] suggested that any changes due in April 2026 will [now] likely be delayed.

“[But ] personally, I think…trying to interpret [HMRC’s] intentions is an exercise in futility.”

‘No doubt PAYE shift is happening from April 6th 2026’

Josh Bramhall, of CMR, a recruitment agency for contractor payroll and accounting firms, said last week:

“There is no doubt that the [PAYE] changes are happening in April 2026. But…it is great to see HMRC improving their understanding”.

Addressing the chancellor in the two-page letter, the FCSA outlined what it has since called a “non-disruptive” way to action the tax compliance plan.

‘Massive repapering exercise if Employment Reference Numbers change’

“[Whether] existing umbrella company Employment Reference Numbers will remain in use [would be worth knowing, as it should be less disruptive]”, it says.

“If the ERN must change, then this problem becomes even more serious because it will necessitate a massive repapering exercise.

“Workers’ overarching contracts of employment with umbrella companies will need to be changed to contracts of employment or contracts for service”.

‘Many contractors will lose continuity of employment’

The association warns Reeves: “This repapering exercise will in effect be a mass fire-and-rehire exercise sanctioned by government.

“Many employees – most of whom have been on an overarching contract for at least two years – will lose their continuity of employment.”

‘Joint and several liability between umbrella and employment business’

One of the letter’s signatories, ReLegal Consulting, reminded that the aim of the plan is to move the PAYE liability from umbrellas to employment agencies.

“It's expected that this will be [achieved] by using the Employers Reference Number of the employment business,” ReLegal began in a LinkedIn post.

“If the ERN is with the umbrella company, it would not achieve the liability change and would be ‘Option 2’ [from the 2023 consultation], because any debt would need to be transferred.

“Having said that, it is still not known how the policy will be drafted. One option might be a joint and several liability between the compliant umbrella employer and the employment business.”

‘Something had to be done’

Despite the “challenges” (as the FCSA letter says, in a moment of understatement) MyPay’s Stephen Hollins believes “something had to be done.”

“There are more named avoidance schemes involving ‘umbrellas’ than there are providers accredited by both FCSA and SafeRec combined,” Hollins claimed.

“This, for me, is how we have ended up with ‘Option 3’ for umbrella regulation come April 2026. [In short], we seem to have more companies doing it wrong than right.”

‘Working policy’

At ReLegal Consulting, founder Rebecca Seeley Harris says the goal has got to be to help the government come up with a “working policy.”

In “Changing The Employer for Tax Purposes from Umbrellas to Recruiters,”  the 11 contractor organisations say in their letter:

“We have yet to see the draft legislation and are therefore unclear as to precisely what we need to prepare for.

“It is not yet clear what modifications will be required to software systems, business operating models and contractual arrangements between the parties and the 700,000 workers involved.

“All of these will take time to test and implement. Rushing these changes, runs the serious risk of disrupting the supply chain and reducing tax receipts to the exchequer.”

‘A clever way to shift employer burdens’

IT contractor Mark Tindal, an umbrella company user, suggests it’s a risk worth taking, even if he already sounds drained by models that appear to shift costs.

“I’ve been working through an umbrella company for over two years now — and I’ve had enough.

“Umbrella companies were sold as compliant and professional — but they’re just a clever way to shift employer burdens onto contractors, quietly and legally, so I’ve launched a petition to stop it.”

Tindal continued in a social media post: “[The petition is] called ‘Stop umbrella companies passing employer costs to contractors.’ Let’s make some noise. Let’s get it to parliament. And let’s finally bring fairness to people like us.”

Alongside the FCSA, APSCo, REC, ReLegal Consulting and Professional Passport, the signatories of the April 16th letter to the chancellor are Clarity Umbrella, JustAccounts, Merit Software, Octopaye, Recspand and the Employment Agents Movement.