Umbrella firms not working for IT contractors, survey finds

IT contractors are being pressured to work by means of umbrella firms. Typically, they will’t decide whether or not these firms are tax compliant, and subsequently continuously endure from unknown deductions, late funds, and inaccurate and opaque payslip info.

These are among the many findings of a survey by IR35 compliance consultancy Contractor Calculator forward of a authorities session set to shut on 1 Could. 

The session – Make Work Pay: Modernising the Company Work Regulatory Framework – goals to modernise the Conduct Laws that govern company remedy of staff and convey umbrella firms into clearer regulatory scope, enhance employee safety and pay transparency.

The Contractor Calculator survey requested 730 contractors and freelancers concerning the influence of IR35 reforms, the function of umbrella firms, and ongoing transparency points throughout the UK’s versatile workforce sector.

The huge bulk of respondents indicated that using an umbrella firm is successfully obligatory typically. Some 88% stated being paid by way of an umbrella firm was the one choice of their most up-to-date engagement, whereas 85% had been informed they have to use an umbrella firm for sure roles.

On the similar time, contractors are deeply sad about being pressured into this place. Of these questioned, solely 5% stated they had been comfortable to make use of an umbrella firm, whereas 25% stated they might by no means use one and 39% would solely use one if pressured to.

The impact, stated the survey commentary, is {that a} lack of selection is impacting the market, with contractors declining roles or leaving altogether, and so decreasing entry to expertise for hiring companies.

The survey additionally highlighted elevated publicity confronted by companies and finish purchasers beneath Joint and A number of Legal responsibility (JSL) guidelines that got here into impact on 6 April 2026.

Underneath these guidelines, organisations might be held answerable for unpaid tax the place non-compliant umbrella firms are used. However, in accordance with the survey, JSL has not likely diminished threat and is troublesome to handle. 

The survey discovered 69% of contractors can’t decide whether or not an umbrella firm is tax compliant, and in any case, 34% select umbrellas primarily based on the best take-home pay quite than compliance. 

Moreover, payslip complexity and unclear deductions stay widespread, with gaps that may depart contractors weak to errors and potential exploitation.

Half of these surveyed (50%) have found sudden deductions, whereas 39% report being paid late. In the meantime, solely 30% can affirm payslip accuracy, and simply 35% can calculate gross pay from an task fee. Project charges are the entire quantity an company pays an umbrella firm for a contractor’s companies. 

Dave Chaplin, CEO of ContractorCalculator, stated: “Our survey outcomes strongly reinforce the route of journey set out within the authorities’s Make Work Pay session. They spotlight, in actual phrases, the dearth of selection, transparency and understanding that contractors are at present going through throughout the company and umbrella panorama.

“Crucially, our survey exhibits simply how widespread the problem of restricted selection has grow to be, with many contractors being provided roles conditional on utilizing a particular umbrella firm. The proposal to take away this observe is crucial. Giving contractors real freedom to decide on how they work will assist forestall the sort of market distortions which have beforehand led to staff being channelled into high-risk or non-compliant preparations.”