The Global Recruiter recently ran an article, “No Audit Trail, No Protection,” which argues for recruitment agencies to take responsibility for remitting PAYE liabilities to HMRC when umbrella companies employ workers and for them to use the umbrella company’s ERN.
On the surface, this might seem like a neat fix. In reality, it is impractical, dangerous for the supply chain, and would likely increase the very risks it aims to reduce.
A Fundamental Misunderstanding
The proposal could be described as agencies “taking over payroll.” In practice, the umbrella would still calculate PAYE liabilities, run payroll, and issue payslips. The recruitment agency would then be expected to remit the tax element to HMRC before passing the remaining funds on to the umbrella for payment to workers.
This approach almost doubles the number of financial interactions. This is not simplification, it is complication.
Nine Reasons This Model Fails
- “Option 3” was already rejected! The government itself considered and discarded this model during consultation. It was rejected because it is unworkable, impractical, and unfair.
- From 600 experts to 24,000 generalists — Around 600 umbrella companies manage PAYE for hundreds of thousands of workers. Passing responsibility to 24,000 recruiters, most of whom lack payroll expertise, fragments compliance oversight.
- Not all recruiters are honest (although most are) — HMRC’s own deliberate tax defaulter list includes recruitment businesses with multi-million-pound defaults.
- Proof becomes a minefield — Endless reconciliations, duplicated checks, and a breeding ground for disputes.
- Risk to umbrellas increases — If an agency fails to remit liabilities, HMRC would look to the umbrella. Yet umbrellas have no direct visibility of payments.
- Complexity is multiplied, not reduced — Introducing two parallel transactions for each payroll run doubles the potential for delay, error, or fraud.
- Agencies would need cash they do not have — Many recruiters rely on credit terms with umbrellas.
- Real audit trails already exist — Digital tools like veriPAYE allow real-time verification of payslips, RTI submissions, and HMRC remittances.
- It does not protect workers or compliance — This model increases opportunities for error and exposes umbrellas to reputational damage they cannot control.
The Real Solution
The sector does not need more duplication and confusion. What is needed is clear accountability, enforceable regulation, and digital transparency:
- Licensing umbrellas so only compliant providers can operate
- Mandating digital audit trails like veriPAYE for real-time assurance
- Targeted enforcement against bad actors rather than burdening compliant operators
Conclusion
The Global Recruiter article is correct that protection requires an audit trail. But shifting the responsibility for making of payments to HMRC to 24,000 recruiters is not the answer. Real-time payslip verification, HMRC reconciliation, licensing, and compliance standards already provide the protection the sector needs.
First published on 29/08/2025 on FCSA’s main website https://fcsa.org.uk
