Umbrella companies and new rules coming 6 April 2026

Umbrella companies are, broadly speaking, employers of convenience. They employ individuals who are engaged to work at different end user clients. Such arrangements are typically at the behest of employment agencies.

The government recently consulted on tackling non-compliance in the umbrella company market, following which they introduced the Finance Bill 2026 to parliament. The new additions to the Income Tax (Earnings and Pensions) Act 2003 will make end clients, umbrella companies and agencies potentially jointly and severally liable for deducting and paying over Pay As You Earn (PAYE) and National Insurance contributions. 

This means that, should the umbrella company fail to deduct and pay the right amount to HMRC, not only can the umbrella company be pursued - but so too can the recruitment agency in the contractual chain. If there is no recruitment agency (or where they are overseas or connected to the company concerned), then the end user client will be responsible. 

How will the changes affect recruitment agencies and end user clients?

If you are an umbrella company, recruitment agency or end user of labour supplied via an umbrella company, there is now an increased risk regarding your employment tax obligations. You need to ensure that the companies you engage with are operating their tax affairs properly - and where they are not, it is important to understand that liability could rest with you and start taking steps to manage that risk. 

How can businesses working with umbrella companies ensure they’re protected?

You should carry out the following checks: 

  • Ensure you understand the complete chain back to the worker(s) concerned;

  • Check HMRC’s list of named tax avoidance schemes;
  • Make sure you know which legal entity provides the worker; 
  • Check whether the real hourly cost of labour supply makes sense; 
  • Check example payslips and Real Time Information (RTI), and keep records;

  • Take care when working with umbrella companies that are offshore or incentivise clients to use their services; and

  • Educate workers by sharing information on tax avoidance schemes.

Looking to prepare and need a helping hand?

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Please be advised that this is an update which we think may be of general interest to our wider client base. The insights are not intended to be exhaustive or targeted at specific sectors as such, and whilst we naturally take every care in putting our articles together, they should not be considered a substitute for obtaining proper legal advice on key issues which your business may face.