UK Contractor and Umbrella Sector on Alert Ahead of Key Legislative Reforms

UK Contractor Sector Faces Crucial Turning Point as Legislative Changes Loom

With significant legislative changes on the horizon, the UK’s contractor and umbrella company sectors are entering a period of uncertainty. Although things may seem quiet for now, the release of new draft laws could bring major shifts in how compliance and accountability are managed across the supply chain. As policymakers prepare to introduce new measures, it’s essential for contractors, agencies, and end-clients to stay alert and ready to adapt.

The government is scheduled to publish the draft Finance Bill 2026 on Monday, 21 July 2025, marking what could be a pivotal moment for tax and employment regulation affecting flexible work arrangements.

What to Expect from the Finance Bill 2026 Release

In addition to the draft legislation itself, a suite of accompanying documents will be made available to provide context and clarification. These include:

• Explanatory notes
• Technical tax information
• Policy impact assessments
• Consultation responses and supporting materials

These documents will serve as the foundation for stakeholders seeking to understand and respond to the proposed legislative changes.

Legislative Day: A Major Development for Umbrella Compliance

Informally referred to as "L-Day", the upcoming announcement is widely anticipated to introduce draft legislation targeting non-compliance in the umbrella company sector — an issue that has been under increasing scrutiny by HMRC and policymakers.

At the heart of the expected changes is the Joint and Several Liability (JSL) framework. This proposal would place responsibility for unpaid PAYE liabilities not just on umbrella companies, but also on recruitment agencies or end-clients, depending on the contractual chain. The legislation is anticipated to take effect from 6 April 2026, pending parliamentary approval.

This initiative forms part of HMRC’s broader strategy to tighten oversight and accountability across contingent labour supply chains.

Distinct from Tax Reform: The Employment Rights Bill

Parallel to the tax reforms, the Employment Rights Bill (ERB) is advancing through Parliament. As of 14 July 2025, the bill has entered its Report Stage in the House of Lords, with a return to the Commons expected shortly thereafter. Recent government amendments have further shaped the legislation’s scope.

Implementation Timeline and Regulatory Roadmap

While the ERB’s passage into law may soon be confirmed, many of its provisions will require subsequent consultations and statutory instruments to determine how and when they will be enacted. A government-issued roadmap outlines a staggered rollout, with effective dates expected in:
• April 2026
• October 2026
• Sometime in 2027

This phased implementation will allow time for businesses and HR departments to align internal processes with new regulatory requirements.

Key Measures in the Employment Rights Bill

Although initially containing 28 proposals, the bill has undergone multiple revisions. Current key provisions include:
• Extending protections for agency workers engaged on zero- and low-hours contracts
• Doubling the compensation for failure to conduct collective redundancy consultations
• Adjusting Statutory Sick Pay to 80% of earnings or the standard rate, whichever is lower (cost to be borne by employers)
• Strengthening statutory regulation of umbrella companies
• Introducing requirements for accurate leave compliance record-keeping
• Expanding bereavement leave to include early pregnancy loss (before 24 weeks)
• Prohibiting the use of NDAs in cases involving allegations of discrimination or harassment

Preparing for Structural Change

While the ERB and Finance Bill address different policy areas, they are both part of a wider governmental effort to modernise the regulation of non-standard employment. For contractors, agencies, umbrella companies, and end-clients, the arrival of L-Day signals a critical moment to review compliance frameworks and contractual practices.

The details published on July 21st will require close analysis to determine their practical implications — and to begin planning for a future regulatory environment that places greater emphasis on accountability and worker protection.