New Measures to Address Umbrella Company Non-Compliance

Stricter Accountability in the Umbrella Company Sector

The UK government is moving forward with decisive reforms targeting non-compliance within the umbrella company market. From 6 April 2026, recruitment agencies and end client businesses will be held responsible for ensuring Pay As You Earn (PAYE) tax and National Insurance contributions (NIC) are correctly accounted for when engaging workers through umbrella companies. This shift aims to close tax loopholes, protect temporary workers, and fortify the integrity of the labour market.

What You Need to Know

Who is affected?

• Recruitment agencies supplying workers via umbrella companies
• End client organisations directly engaging workers through umbrella companies
• Umbrella companies processing payroll on behalf of agencies and clients

Core changes:

1. Recruitment agencies become legally responsible for PAYE/NIC on payments to workers engaged via umbrella companies.

2. If there is no agency in the chain, the end client assumes this duty.

3. Joint and several liability will be established, meaning agencies and clients can be held accountable alongside umbrella companies.

• Legislation: Proposed changes will be introduced through the Finance Bill 2025-26, amending current income tax and NIC regulations.

Why Is This Happening?

The policy responds to ongoing concerns over fraudulent practices and non-compliance among some umbrella companies. Unscrupulous operators have enabled tax evasion, often leaving workers with large unexpected tax bills and undermining compliant businesses. According to HMRC, around 700,000 individuals work through umbrella companies, making effective regulation essential for both transparency and worker protection.

Key objectives include:

• Closing the tax gap by preventing losses from fraud and tax avoidance
• Protecting temporary workers from unfair tax liabilities
• Leveling the playing field for businesses by limiting opportunities for fraudulent actors

Financial and Operational Impact

The Exchequer anticipates the following additional revenue:

Financial Year	Additional Revenue (£ million)
2024-25	0
2025-26	75
2026-27	895
2027-28	740
2028-29	635
2029-30	500

These figures, certified by the Office for Budget Responsibility, reflect the government's aim to reduce fraud and tax avoidance within this labour market segment.

Impact on businesses:

• Increased due diligence requirements for agencies and end clients
• Possible shift to in-house payroll operations
• Administrative adaptation to new legislation
• Ongoing support and guidance from HMRC

Impact on individuals:

• Greater protection from non-compliant umbrella companies
• Fewer unexpected tax bills
• Clearer employment rights and obligations

Perspectives and Sources

The government underscores that empowering agencies and clients, who have control over labour supply chains, is the most efficient route to improved compliance. As summarised in the official policy papers:

"Those best placed to prevent non-compliance should bear responsibility. This protects workers, supports compliant businesses, and safeguards the Exchequer."

Further guidance and consultation outcomes are available at:

• [Autumn Budget 2024 policy paper](https://www.gov.uk/government/publications/tackling-tax-non-compliance-umbrella-company-market/tackling-non-compliance-in-the-umbrella-company-market--3)
• [Consultation outcome — tackling non-compliance in the umbrella company market](http://www.gov.uk/government/consultations/tackling-non-compliance-in-the-umbrella-company-market)

Next Steps for Agencies and Clients

• Begin reviewing relationships with umbrella companies to assess compliance
• Implement or strengthen due diligence processes in labour supply chains
• Plan for operational adjustments to payroll management ahead of the April 2026 deadline
• Seek out HMRC’s available guidance and support for navigating the new requirements

Stay vigilant. Strengthen your labour supply chain processes to help ensure fairness for workers and compliance for your business.