The UK’s umbrella payroll market hit a turning point in 2024. Increased regulation, compliance crackdowns, and shifting accountability have forced agencies, end-clients, and contractors to rethink how they approach payroll partnerships. And now, in 2025, supplier due diligence has never been more critical.
But let’s be clear: this isn’t some seismic regulatory upheaval—it’s the logical next step in a compliance journey that should have already been well underway. Companies acting as though these changes have come out of nowhere are simply exposing their own lack of due diligence. The writing has been on the wall for years.
With HMRC tightening its grip, the market is splitting—on one side, compliant, future-proof providers that invest in transparency, automation, and operational resilience. On the other? High-risk, outdated operators clinging to loopholes that won’t last. The difference between choosing the right or wrong payroll partner is no longer just an operational inconvenience—it’s a major financial and legal liability.
The importance of Supplier Due Diligence in 2025
With new regulations coming into place, 2025 is the year that businesses need to double down on due diligence. But let’s be honest: they should have been doing this all along. The latest changes don’t introduce anything radical—they simply reinforce what responsible businesses should already be practicing.
Choosing the cheapest payroll provider, or assuming compliance is ‘someone else’s problem,’ is no longer an option. The risks are too high. Agencies and end-clients should be stress-testing their payroll providers regularly, ensuring they:
✔️ Meet all HMRC compliance standards, with a clear, documented track record of tax and employment law adherence.
✔️ Have the infrastructure to scale and adapt, rather than relying on outdated or risky workarounds.
✔️ Invest in technology to drive automation, reduce admin burden, and offer real-time visibility into pay and deductions.
✔️ Are financially stable and reputable, built for longevity rather than short-term profit.
A non-compliant payroll provider is no longer just their problem—it becomes your problem when HMRC comes knocking. If your payroll partner fails, you could be held liable for unpaid NICs, tax shortfalls, and other financial penalties.
What still needs to change in the Umbrella market?
The umbrella payroll market is still far from perfect. Several key issues remain unresolved:
Inconsistent enforcement
HMRC has taken a tougher stance, but there’s still a lack of clarity on how consistently these rules will be applied. Some non-compliant operators are still slipping through the cracks.
Lack of transparency on margins and deductions
Many umbrellas still operate with opaque fee structures, leaving contractors unclear on exactly how much of their pay is being skimmed off the top.
The need for full regulation of umbrella companies
While agencies and end-hirers will be held accountable, the umbrella companies themselves still lack proper direct oversight. Without full regulation, rogue operators will continue to find new loopholes.
Stronger penalties for non-compliance
The transfer of debt provision is a step forward, but harsher penalties for umbrella companies that engage in tax avoidance schemes would further clean up the sector.
Education and industry-wide best practices
Many businesses still don’t understand what ‘good compliance’ actually looks like. Standardised industry benchmarks would help separate compliant providers from those playing fast and loose with tax and employment laws.
Who will lead the market in 2025?
1. Compliant, well-run umbrella providers that prioritise transparency, efficiency, and long-term resilience
2. Fly-by-night operators that will either fold under regulatory pressure or continue playing a dangerous game—until they can’t.
The question is: which side is your payroll provider on?
For agencies and end-hirers, payroll can’t be an afterthought. The most successful businesses in 2025 will be those that proactively manage supplier risk, invest in long-term partnerships, and embrace automation and compliance as part of their competitive strategy. Those that don’t? They’ll be the ones dealing with financial penalties, reputational fallout, and operational disruption.
Compliance isn’t just about avoiding risk anymore. It’s a competitive advantage.