UK Umbrella Company Legislation Changes Proposed for April 2026

Changes to UK umbrella company legislation from April 2026. Understand the impact of joint and several liability on your business and how to prepare with the right due diligence and risk controls.

The Government handed down the draft Finance Bill 2025 on 21 July 2025, including joint and several liability as previously suspected.

Relevant Parties

Who are the Relevant Parties within the draft legislation?:

• The umbrella company: A business that employs workers to provide services to a client, where the worker does not have a material interest in the company and the “umbrella company arrangements conditions” are met (e.g., specific contractual arrangements).
• Agency Closest to the End Client: If an agency is involved in the supply chain and holds a contract with the end client, this agency is considered a relevant party. In cases with multiple agencies, the agency closest to the end client (e.g., a top-tier agency or Managed Service Provider) is the relevant party. If the agency or end client is not UK-resident, the closest UK-resident agency in the supply chain becomes the relevant party.
• End Client: If no agency is involved in the supply chain, the end client (the entity receiving the worker’s services) is the relevant party.

Joint and several liability

The umbrella company is primarily responsible for PAYE and NIC obligations.

Under the new rules, HMRC can issue a tax demand to any Relevant Party if the umbrella company fails to pay its PAYE or NIC obligations, for example, if an umbrella company becomes insolvent or deliberately avoids tax payments. The liability is “joint and several,” meaning HMRC can seek the full amount from any single party, who may then need to recover contributions from others in the chain through civil proceedings.

It’s our understanding that joint and several liability will only be relevant to your own workers in your supply chain and not the workers of other agencies paid by the umbrella company.

Parties that aren’t Relevant Parties

It appears, based on the current wording of the draft legislation, that any other parties within the supply chain who are not Relevant Parties carry no tax risk whatsoever, with the only potential risk being reputational. Whether this intention carries over to the final wording of the legislation is an interesting one, as you could argue that everyone in the supply chain should be held liable, but that is not the case currently.

The implications of these changes to the industry

The changes are likely to have the following implications for the industry:

• Enhanced due diligence procedures.
• Increased financial risks: Agencies and end clients face direct financial risk if an umbrella company defaults on its tax obligations. This will lead to higher operational costs, as businesses will need to invest in compliance checks and/or legal support to mitigate risks.
• Shift in market practices: This is the most beneficial change foreseen, as this legislation is likely to drive out non-compliant operators within the temporary labour market. There will likely be a significant movement to compliant umbrella providers, as the financial costs and risks of dealing with non-compliant providers would become too high.
• Impact on workers: While the legislation primarily targets tax compliance, it indirectly protects workers by discouraging the use of non-compliant umbrella companies that may exploit loopholes or withhold payments. Workers should benefit from greater transparency and security in their employment arrangements.

Preparation for the changes – conduct supply chain audits

Now that we have the draft legislation, conducting a supply chain audit is of utmost importance. Identifying the Relevant Party within the supply chain might be straightforward, or it may not. Having foreign parties within the supply chain may mean that your agency is the Relevant Party, even if you do not have a contractual relationship with the end client, so ensure you know exactly where the risk is sitting within the supply chain.

Preparation for the changes: gain a detailed understanding of how your workers are engaged and paid, and who exactly is paying them.

We propose the following checks:

• To ensure that the workers are engaged by the umbrella company itself and not a subsidiary/associated/other company.
• Who the directors of the umbrella company are, and be extremely suspicious of foreign directors only.
• Follow through the directors’ links to other companies on Companies House and be extremely suspicious of a large number of sequential companies linked to the director/s.
• Be extremely suspicious of an umbrella company charging extremely low margins/fees (or no margins/fees at all).
• Be extremely suspicious if the worker’s take-home pay is higher than expected.
• Be extremely suspicious if their payment process is not transparent, or if it’s overly complicated or confusing.

Another risk area is the terminology employed on Key Information Documents (KID) and adverts related to workers engaged by an umbrella. It is imperative that KID documents and adverts clearly reflect an assignment rate or umbrella rate rather than just an agency PAYE rate. A large tribunal claim against an umbrella company for incorrect terminology employed could eventually lead to a significant unplanned tax bill, which could end up being passed on to the Relevant Party by HMRC.

Preparation for the changes – seek professional advice

Consult with our tax and legal experts to understand the full scope of potential liabilities and develop risk mitigation strategies. Recruitment Accountants is well-positioned to assist you with these strategies.

Implement robust ongoing & regular due diligence processes

HMRC issued guidance on what due diligence checks need to be done, which you can find here.

Follow the due diligence advice proposed by HMRC diligently and document it each and every time. This will become extremely important in the event that you need to use it as a defence in the event of HMRC action. Mitigating umbrella risk is also extremely important when it comes to due diligence checks performed in the event of a sale of the business, as it could severely affect the price paid for the business if the risk is considered too high.

Enhanced due diligence checks will be required. Relying solely on these due diligence checks or accreditation of an umbrella company with a respected umbrella association, or the use of pay sheet checkers only, might not be adequate to mitigate the risk that agencies face. Doing all of these things and more will unfortunately be required.

As the Relevant Party could be responsible for the payroll taxes to HMRC, pay sheet checkers might not fully cover off the employer’s NIC checks. They’re great at identifying issues with the employee NIC, etc., but one of the largest issues with “mini umbrella” operators is the fraudulent use of multiple different companies and claiming the NI Employment Allowance within each of these, which pay sheet checkers may be unable to confirm.

Other regular payroll checks that could be considered:

• A reasonable sample of your referred workers followed through to final payroll reports (matching the name of the umbrella company), ensuring that a large volume of workers are included in these reports, as a “mini-umbrella” will only place a few workers on each company.
• Calculating the employers’ NIC’s independently and following this through to the payroll reports supplied by the umbrella company.
• Ensure that the payroll reports are followed through to RTI submissions – request that the umbrella company show you the details submitted on their HMRC portal, rather than just a print/PDF version of it. Some payroll checkers may be able to provide this information already.
• Evidence of the employers’ NIC payments being made to HMRC – copies of bank statements cross-referenced to the HMRC portal of the umbrella company.
• Using payroll checkers as provided by Saferec or the FCSA to ensure the accuracy of the deductions made on the umbrella pay sheets. HMRC has also developed a free-to-use payroll checker here.
• Reviewing any untaxed amounts paid to workers and their correct treatment, for example, untaxed travel and subsistence payments. Review the umbrella company’s expense policy and evidence of regular expense checks performed by them, and what action they have taken on workers who failed their expense checks.

Regularly review the financial strength of the umbrella companies you deal with. FCSA-accredited members must maintain a balance sheet value in excess of 2.5% of net margins, but also ensure that the umbrella company is up to date with their regular payroll taxes and VAT.

In the event that you insure your potential losses, understand clearly what due diligence checks will be required to ensure compliance with the policy.

Introducing further due diligence checks will require time – it is therefore imperative for any agencies affected by these changes to start introducing these enhanced due diligence checks as soon as possible.

In order to perform these checks to a reasonable standard, it is advisable to limit the number of umbrella companies you are willing to engage with on your PSL to three or four only. Having open communication lines with your umbrella company’s compliance management will be extremely useful. Compliant umbrella companies will be willing to work with you to ensure that your due diligence checks are performed to the level that you need to and in line with your risk profile.

Final consideration

Consideration should be given to the staff requirements to cover the additional due diligence checks required and the resultant cost. Identify who in your organisation is able to manage these added checks and identify outsourcing partners you can trust in the event that you do not have the internal staff complement to deal with these checks.

Start communicating with the umbrella companies on your PSL now to discuss how these added checks can be introduced.

The final legislation may include further changes, and we will keep you informed as and when it receives Royal Assent.

Find out more about our recruitment specialist team here.