Umbrella Tax Reform: Positive Update from HMRC Discussions

Encouraging Progress in HMRC-Umbrella Company Talks

In a significant development for the umbrella company sector, representatives from the Freelancer & Contractor Services Association (FCSA) and other key stakeholders recently met with HMRC and Treasury officials to discuss proposed tax changes. The discussions brought encouraging news for the industry.

Revised Approach from HMRC

HMRC’s policy team has now recommended a revised approach to ministers regarding how tax is handled within the umbrella company model. Rather than moving forward with the previously suggested plan — which would have required recruitment agencies to deduct PAYE tax before paying umbrella companies — HMRC is now proposing to retain the current operational model.

Under this revised plan, umbrella companies would continue to receive gross payments from agencies (or end clients, where no agency is involved) and remain responsible for processing payroll via their own PAYE references. To strengthen compliance, a joint and several liability model is being introduced, ensuring shared responsibility across the supply chain.

This shift marks a significant change from earlier proposals and is a direct result of extensive dialogue between HMRC and industry representatives, including concerns raised by FCSA and others.

What This Means for the Sector

This update signals that there will be no fundamental changes required to the current umbrella company operating model when the new legislation takes effect in April 2026. This is a welcome outcome for the market, helping to avoid the considerable disruption and complexity that the earlier proposal would have caused.

However, while the operational status quo may remain, the need for due diligence has never been greater. As the legislative landscape evolves, it becomes even more critical to partner with long-standing, reputable, and compliant umbrella companies to ensure risk is managed effectively.

What’s Next

The draft legislation is expected to be published in July, which will provide more clarity on the specifics of the changes, particularly around the implementation of joint and several liability. Further updates will follow once the draft is released.