Umbrella companies not working for IT contractors, survey finds

IT contractors are being forced to work through umbrella companies. Often, they can’t determine whether those companies are tax compliant, and therefore frequently suffer from unknown deductions, late payments, and inaccurate and opaque payslip information.

Those are among the findings of a survey by contracting authority ContractorCalculator ahead of a government consultation set to close on 1 May. 

The consultation – Make Work Pay: Modernising the Agency Work Regulatory Framework – aims to modernise the Conduct Regulations that govern agency treatment of employees and bring umbrella companies into clearer regulatory scope, improve worker security and pay transparency.

The Contractor Calculator survey asked 730 contractors and freelancers about the impact of IR35 reforms, the role of umbrella companies, and ongoing transparency issues across the UK’s flexible workforce sector.

The vast bulk of respondents indicated that the use of an umbrella company is effectively compulsory in most cases. Some 88% said being paid via an umbrella company was the only option in their most recent engagement, while 85% had been told they must use an umbrella company for certain roles.

At the same time, contractors are deeply unhappy about being forced into this position. Of those questioned, only 5% said they were happy to use an umbrella company, while 25% said they would never use one and 39% would only use one if forced to.

The effect, said the survey commentary, is that a lack of choice is impacting the market, with contractors declining roles or leaving altogether, and so reducing access to talent for hiring firms.

The survey also highlighted increased exposure faced by agencies and end clients under Joint and Several Liability (JSL) rules that came into effect on 6 April 2026.

Under these rules, organisations can be held responsible for unpaid tax where non-compliant umbrella companies are used. But, according to the survey, JSL has not really reduced risk and is difficult to manage. 

The survey found 69% of contractors cannot determine whether an umbrella company is tax compliant, and in any case, 34% choose umbrellas based on the highest take-home pay rather than compliance. 

Additionally, payslip complexity and unclear deductions remain widespread, with gaps that can leave contractors vulnerable to errors and potential exploitation.

Half of those surveyed (50%) have discovered unexpected deductions, while 39% report being paid late. Meanwhile, only 30% can confirm payslip accuracy, and just 35% can calculate gross pay from an assignment rate. Assignment rates are the total amount an agency pays an umbrella company for a contractor’s services. 

Dave Chaplin, CEO of ContractorCalculator, said: “Our survey results strongly reinforce the direction of travel set out in the government’s Make Work Pay consultation. They highlight, in real terms, the lack of choice, transparency and understanding that contractors are currently facing across the agency and umbrella landscape.

“Crucially, our survey shows just how widespread the issue of restricted choice has become, with many contractors being offered roles conditional on using a specific umbrella company. The proposal to remove this practice is essential. Giving contractors genuine freedom to choose how they work will help prevent the kind of market distortions that have previously led to workers being channelled into high-risk or non-compliant arrangements.”