How to Start a Recruitment Agency in the UK

How recruitment agencies actually make money

This is the most-asked question in this space, so it's worth answering plainly before anything else. Recruitment agencies typically make money in two structurally different ways, depending on the kind of placement:

• Temp and contract placements: the agency charges the client a rate for the worker's time (the charge rate) and pays the worker a lower rate (the pay rate) — the margin between the two is the agency's income on that placement, earned on an ongoing basis for as long as the assignment runs.
• Permanent placements: the agency charges the client a one-off fee for successfully placing a candidate, commonly calculated as a percentage of the candidate's first-year salary.

Most agencies run one model, the other, or both — and the back-office demands of each are genuinely different: a temp desk needs a system that can process timesheets and pay & bill every week, indefinitely, while a perm desk needs one invoice per successful placement.

The legal and registration steps

Company registration

Most UK recruitment agencies register as a private limited company with Companies House. Using gov.uk's own registration service, it costs £100, paid by card, and the company is usually registered within 24 hours; you'll also confirm your People with Significant Control (anyone with more than 25% of the shares or voting rights) as part of registration, and you can register for PAYE at the same time if you'll be employing staff. See gov.uk — Register your company.

Whether you need a licence for your sector

Most recruitment agencies don't need a specific operating licence to trade — but there's one significant, sector-specific exception worth knowing about before you assume none applies: agencies supplying workers into agriculture, horticulture, shellfish gathering, or food processing and packaging need a gangmasters licence from the Fair Work Agency (which absorbed the Gangmasters and Labour Abuse Authority's functions), and it's a criminal offence to supply workers into those sectors without one. See gov.uk — Apply for or manage a gangmaster's licence. Outside those specific sectors, don't assume a similar requirement applies without checking — sector licensing in areas like education or care settings depends on the specific role and client, and is worth confirming against current gov.uk guidance for your actual client base rather than guessed at generally.

The rules every agency operates under, regardless of sector

Separately from sector-specific licensing, every GB recruitment agency and employment business is bound by the Employment Agencies Act 1973 and The Conduct of Employment Agencies and Employment Businesses Regulations 2003 — minimum standards covering things like agreeing terms with work-seekers before providing work-finding services, and giving temporary work-seekers a Key Information Document before they register. Since 7 April 2026, enforcement of these rules sits with the Fair Work Agency, a new executive agency created under the Employment Rights Act 2025 that brought together the former Employment Agency Standards Inspectorate, the Gangmasters and Labour Abuse Authority, and National Minimum Wage enforcement into one body. See gov.uk — Fair Work Agency and gov.uk — Overview of the Conduct Regulations 2003.

Data protection registration

If your agency processes personal data (and a recruitment agency inherently does — candidate, contractor and client details), you generally need to pay the ICO's data protection fee, unless an exemption applies. As of this guide's review date, the fee sits in three tiers depending on staff numbers and turnover: £52 for micro-organisations (up to 10 staff or £632,000 turnover), £78 for small/medium organisations (up to 250 staff or £36 million turnover), and £3,763 for larger organisations — each reduced by £5 if paid by direct debit. See ICO — Guide to the data protection fee.

Getting your first clients and contractors

There's no shortcut around this one: it's relationship-building, sector by sector — cold outreach to hiring managers, building a candidate pipeline before you need it, and, for many new agencies, specialising in a sector where the founder already has a network. Most new agencies find it easier to win a first client by being genuinely specialised (one sector, one region, one role type) than by trying to compete broadly with established generalist agencies from day one — a narrower pitch is also usually a faster one to make credibly with no track record yet.

What matters for the back-office side of the business is that from the very first placement, you need to be able to pay the contractor correctly and on time, and invoice the client correctly — because that first placement is also your first real-world test of whether your process actually works. A mistake here — a missed payment, a wrong rate, a late invoice — costs you disproportionately more as a new agency than it would once you're established, since you don't yet have the relationship capital to absorb it.

The back-office systems you'll need from day one

This is a genuinely easy thing to underestimate when you're focused on winning clients: you often need timesheet, invoicing and compliance systems before you need a full CRM, because you can't place your first contractor without being able to pay them correctly — a CRM matters once you're managing a pipeline of candidates and clients at volume, but paying your first placed worker correctly is a day-one requirement, not a scaling problem. A spreadsheet can get a single-person agency through its first few placements, but it stops being a safe choice the moment you're tracking AWR weeks, IR35 status, or document expiry across more than a handful of contractors at once.

Common early mistakes

• Compliance treated as an afterthought. AWR and IR35 tracking get set up "properly" only after the first near-miss, rather than from the first placement. See our AWR 12-week rule guide and IR35 Status Determination Statement guide.
• Manual spreadsheets that don't scale. They work for five contractors and quietly start failing at fifteen, usually around the exact week a compliance deadline gets missed. See our recruitment agency compliance checklist for what to track from day one.
• No self-billing process, meaning contractors are left to raise their own invoices correctly every week — a real source of delay and error that a self-billing agreement removes entirely. See our self-billing invoices guide.

Getting started with Templio from day one

Templio is built for exactly the back-office and compliance layer a new agency needs first: contractor timesheets by magic link, client approval by email, self-billed invoices synced to Xero, and AWR/IR35 tracking from the first contract you create. £49/month covers your first 5 active contractors, with a 14-day free trial and no card required — so you can have your back office running before your first invoice is due. See our timesheet software for recruitment agencies page or pricing.

FAQs

How do recruitment agencies make money? Temp and contract placements earn an ongoing margin between the charge rate billed to the client and the pay rate paid to the worker. Permanent placements earn a one-off fee, commonly a percentage of the candidate's first-year salary.

Do I need a licence to start a recruitment agency in the UK? Not generally — but agencies supplying workers into agriculture, horticulture, shellfish gathering, or food processing and packaging need a gangmasters licence from the Fair Work Agency, and it's a criminal offence to operate in those sectors without one. Check current gov.uk guidance for your specific sector before assuming either way.

How much does it cost to start a recruitment agency? Company registration itself costs £100 via gov.uk's own service. Beyond that, costs vary hugely by how you build the business — office space, insurance, back-office software and marketing all vary by scale and sector, so there's no single verified figure to quote; treat any specific "cost to start" number you see elsewhere with caution unless it's dated and sourced.

What software does a new recruitment agency need first? Back-office and compliance tooling — timesheets, invoicing and document tracking — because you need to be able to pay your first placed contractor correctly before anything else about the business matters. A full CRM becomes worth the cost once you're managing candidate and client volume, not before.

This guide is general information, not legal or financial advice. Company registration fees, licensing requirements and the ICO fee are all set by the relevant regulator and can change — check the live gov.uk and ICO pages before relying on a specific figure.