Umbrella companies – what businesses need to know from April 2026 

From 6 April 2026, significant changes will take effect in relation to the use of umbrella companies in labour supply chains. New rules will impose joint and several liability for unpaid PAYE income tax and Class 1 National Insurance contributions (NICs) on parties higher up the labour supply chain, including recruitment agencies and, in some cases, end-user clients. The measures form part of the Government’s wider strategy to tackle non-compliance in the umbrella company market. 

What is changing? 

Under the current framework, an umbrella company is usually the employer for tax purposes and is responsible for operating PAYE and accounting to HMRC for income tax and employee and employer NICs. Where an umbrella company fails to do this correctly, HMRC’s recovery options have historically been focused on the umbrella company itself. 

From 6 April 2026, this position will change. Where workers are supplied through an umbrella company as part of a labour supply chain, HMRC will be able to recover unpaid PAYE income tax and NICs from another “relevant party” in the chain, on a joint and several basis. This means HMRC can pursue that party for the full amount of any PAYE and NICs shortfall, irrespective of fault. 

In most cases, the relevant party will be the agency which has the contract with the end-user client to supply the worker. However, where there is no UK-based agency in the chain, liability will instead fall on the end-user client. 

Who do the rules apply to? 

The new rules will apply to payments made to workers on or after 6 April 2026 (regardless of when the contractual arrangements were entered into) where: 

• a worker is supplied to an end-user client via a labour supply chain; and 

• the labour supply chain includes an umbrella company, whether existing or newly established. 

For these purposes, an “umbrella company” is defined broadly as a third party (such as an agency) which employs a worker where: 

• there is a contract between the end-user client and either the organisation employing a worker or a third party; and 

• pursuant to such contract the worker will provide services to the end-user client under the terms of that contract or through a series of contracts between the end-user client, the organisation which employs the worker and intermediary third parties in the labour supply chain. 

The new rules also introduce the concept of “purported umbrella companies”, which further extends the scope of the rules in order to catch intermediaries that present as or appear to be employers but which do not actually deduct PAYE and NICs (for example through the use of personal service companies). Meaning that, in these circumstances, liability may still be transferred up the chain. 

HMRC has, however, confirmed that certain arrangements remain outside the scope of the new rules, including: workers operating through their own personal service companies where the off-payroll working rules apply, managed service companies, salaried LLP members and workers treated as employed by an agency under the agency worker tax rules.  

No statutory defence 

A key feature of the new regime is that there is no “reasonable care” or knowledge-based defence. An agency or end-user client can be liable even where it was unaware of non-compliance by the umbrella company and even where some due diligence has been carried out. HMRC’s stated intention is to place responsibility on those with control over labour supply chains to prevent non-compliant operators from entering them in the first place. 

Why has this been introduced? 

HMRC estimates that around 700,000 workers are engaged via umbrella companies and that non-compliance in parts of the market has led to significant tax losses, including through tax avoidance and fraud. The Government’s policy objective is to close this tax gap, prevent workers facing unexpected tax bills and ensure compliant providers are not undercut by non-compliant operators. The measures also sit alongside the government’s wider “Plan to Make Work Pay”. 

What does this mean for end-user clients? 

For end-user clients (not currently caught by the off-payroll worker rules), particularly those engaging large numbers of contingent workers, the changes represent a material shift in risk. Even where an end-user client does not contract directly with an umbrella company, it may ultimately bear liability if there is no UK-based agency in the supply chain. Liability can relate to historic PAYE and NIC failures arising from payments made after 6 April 2026, and HMRC has the discretion to choose which party to pursue. 

How to achieve compliance 

End-user clients should do the following.   

• Review (and continue monitoring) their labour supply chains to identify where umbrella companies are used or could be regarded by HMRC as existing. 

• Strengthen their due diligence processes for contracting with agencies and umbrella companies, including scrutiny of payroll models, transparency on deductions and confirmation of PAYE and NIC remittances. HMRC’s guidance makes clear that risk reduction, rather than complete risk elimination, is the realistic aim. 

• Review contractual terms with agencies, in particular to ensure they contain adequate protections (including warranties and indemnities) and sufficient administrative provisions (information-sharing obligations and audit rights) in relation to PAYE and NICs compliance. While contractual protection will not prevent HMRC recovery, it may assist with commercial options for reimbursement. 

• Consider whether alternative engagement models, such as engaging with agencies that fall within the agency worker tax rules (and accordingly account to HMRC for PAYE and NICs) or direct employment of the workers in question, could be used to reduce exposure in higher-risk areas of the workforce. Any changes should be assessed carefully for employment law and employment status implications. 

• Ensure internal governance teams, including HR, procurement and finance, are aware of the changes and aligned on approval and monitoring of labour supply arrangements. 

Looking ahead 

HMRC has confirmed that these changes are a compliance measure rather than full regulation of the umbrella market, with separate umbrella company regulation anticipated from 2027. However, from April 2026, end-user clients will need to recognise that umbrella company compliance has an increased level of risk.