The Comprehensive Guide to Contractor Compliance in the UK

The Comprehensive Guide to Contractor Compliance in the UK

Here at i4, we talk about compliance a lot. That is because it’s at the heart of everything we do for our recruitment partners and our hard-working contractors. But it’s also because we’re big fans of old-fashioned values such as fairness, integrity and honesty, and it’s by holding ourselves to the highest possible standards that we maintain our levels of professionalism and accountability. Here we look at the issues surrounding compliance and how we can help you stay compliant throughout the whole umbrella process.

Why is compliance important?

Compliance ensures a level playing field, where every contractor is treated fairly and, in return, pays their fair share of tax and National Insurance contributions. It helps keep contractors safe from prosecution for tax avoidance by HMRC. It allows recruiters to fulfil their roles in finding jobs for people who want them, and end-clients who have vacancies they need filling, without fear of investigation or being fined massive amounts of money. In short, it enables a vital sector to flourish, contributing towards the economy of the UK and helping thousands of people every week.

Sadly, not everyone takes umbrella compliance as seriously as we do. We’ve put together this comprehensive guide to compliance so that when you’re choosing an umbrella company, either to be your employer or as a business partner, you know who you can trust. Let’s take a look at some of the issues you need to be aware of.


Possibly the most important indicator of a compliant umbrella company is their accreditation status. Here at i4, we’re proud members of the Freelancer and Contractor Services Association (FCSA), the UK’s leading membership body which is dedicated to raising standards and promoting compliance among umbrella companies. This means that we’ve undergone a rigorous and lengthy process which involved us demonstrating our compliance credentials, proving adherence to the organisation’s Codes of Compliance, passing Due Diligence and Fit and Proper Person tests, providing documentary evidence of how we meet every standard the FCSA requires, having our staff interviewed, and being randomly audited. It’s an exhausting and comprehensive procedure but one that we were more than happy to participate in to receive approval. 

Not every compliant umbrella company is an FCSA member but no non-compliant ones are. And when you’re investigating possible umbrella companies on which your livelihood depends, it’s a great place to start. 

Tax matters

There are two things you can’t avoid in life and one of them is taxes. We’re all morally obliged to pay our fair share, and anyone trying to avoid doing so will eventually and inevitably incur the wrath of HMRC in one form or another. 

For example, some non-compliant umbrella companies are operating as tax avoidance schemes, promising contractors that they’ll pay less tax with them through a variety of convoluted and fraudulent schemes. The signs are easy to spot and include:

  • Claiming that they are ‘HMRC-approved’ (HMRC does not approve umbrella companies)
  • Being paid through a loan scheme or a salary advance
  • Promises of higher-than-usual take-home pay (some suggest that contractors can keep up to 90% of their earnings)
  • Advertising ‘better than PAYE’ rates
  • Being based off-shore, and therefore not subject to HMRC rules
  • Offering little information about who runs the company.

For recruiters, partnering with non-compliant umbrella companies can result in their directors being prosecuted under the Criminal Finance Act 2017, receiving unlimited fines, or even being jailed. Contractors face having to repay the entirety of their unpaid tax bill and may even face prosecution.

Staying within the law

The laws around umbrella companies and employment legislation change frequently and are subject to constant updates. It can be difficult, as a busy recruiter, to keep up with new requirements but it’s a vital part of your job to be aware of the changes and how they impact your contractors and end clients. 

Aspects of the law which are subject to frequent updates include:

  • IR35 – introduced in 2000 to prevent disguised employment and therefore ensure that contractors pay comparable rates of Income Tax and National Insurance to traditionally employed people, the rules changed in 2017 so that it became the responsibility of the end-client to determine a contractor’s status through the use of the Government’s CEST tool. Unfortunately, CEST doesn’t always get it right as we discuss here and can leave contractors in a state of limbo as they try to settle their status. It’s something that a compliant and conscientious umbrella company can help with
  • Agency Workers Regulations (AWR) – designed to ensure that contractors have the same employment rights as traditionally employed people, AWR was introduced in 2011 and covers such things as fair treatment, access to on-site facilities, the ability to apply for internal vacancies, equal rest breaks and working hours, and paid annual leave. A compliant umbrella company will work with recruiters to ensure that all contractors are covered by AWR
  • Key Information Documents (KIDs) – designed to increase transparency about a contractor’s employment as well as their pay, KIDs were introduced in 2020 and should provide information about how deductions and fees will affect take-home pay. It’s now a legal requirement that every contractor is offered a KID before they take up a role 

Failure to adhere to any change in employment legislation can severely impact a recruitment business as well as the contractors it deals with. That’s why a compliant and efficient umbrella company can alleviate the pressure of keeping up-to-date, and ensure that all legal requirements are taken care of.

We work hard on behalf of our recruitment partners and our contractors to ensure that every detail of the employment process is fair and legal and can help recruiters avoid making costly mistakes which can damage not only the agency’s reputation but also the livelihoods of hard-working contractors. We’re able to achieve this by ensuring that we adhere to the highest standards of compliance possible. If you’re a recruiter who’d like more information about maximising your compliance standards, or a contractor anxious to avoid a non-compliant umbrella company you can call us for more information at 0800 084 3058, email us at or fill in the contact form here.