Clients: April 2026 Umbrella Company Changes: What Your Organisation Needs to Know

A Fundamental Shift in Compliance Responsibility

From 6 April 2026, significant legislative changes will reshape how organisations engage with umbrella companies. If your business uses recruitment agencies or works with contingent workers through umbrella arrangements, these reforms will directly impact your operations and compliance obligations.

What's Changing?

The government has introduced Joint and Several Liability (JSL) for PAYE tax compliance within labour supply chains. This represents a fundamental shift: recruitment agencies and, in certain circumstances, end-client organisations will become jointly responsible for any unpaid PAYE income tax, National Insurance Contributions, and Apprenticeship Levy if an umbrella company fails to meet its obligations.

The key difference: HMRC has made clear it will pursue agencies or end-clients without first exhausting recovery options against the umbrella company itself. This means potential immediate financial liability for tax compliance failures elsewhere in your supply chain.

Who This Affects

You are likely to be impacted if you:

• Engage contingent workers through recruitment agencies that use umbrella companies
• Contract directly with umbrella companies for temporary or contract staff
• Use managed service providers in your labour supply chain
• Operate in sectors with high contingent workforce usage (IT, healthcare, finance, construction)

Understanding Your Liability Position

The "relevant party" bearing joint liability is typically the recruitment agency contracting with your organisation. However, liability shifts to you as the end-client if:

• The umbrella company contracts directly with you (no agency intermediary)
• The agency is connected to the umbrella company
• The agency is based outside the UK

For organisations with cross-border operations, careful mapping of these arrangements will be critical to determine where liability ultimately sits.

What This Means for Your Organisation

Financial Risk

Over 700,000 workers were engaged through umbrella companies in 2022/23, with more than a third working through non-compliant structures. Government estimates suggest this non-compliance costs approximately £500 million annually. Under the new rules, your organisation could face substantial unexpected tax liabilities if umbrella companies in your supply chain fail to meet their obligations.

Operational Changes

The practical implications include:

• Enhanced due diligence requirements: You'll need robust processes to verify umbrella company compliance
• Supply chain restructuring: Managed service providers may need to exit or restructure labour supply chains
• Cost profile changes: Expect shifts in engagement models and associated costs
• Documentation requirements: Clear, documented evidence of due diligence processes will be essential

Legal Position

Importantly, liability under the new regime is automatic and cannot be displaced by demonstrating that reasonable steps were taken. While accreditation schemes and compliance checks can reduce the likelihood of engaging a non-compliant umbrella company, they offer no legal defence against joint and several liability.

Steps You Should Take Now

With implementation just weeks away, immediate action is essential:

1. Audit Your Current Arrangements

• Identify all umbrella companies in your supply chain
• Map contractual relationships to understand where liability sits
• Review agency contracts and service level agreements

2. Strengthen Due Diligence

• Implement robust vetting processes for umbrella companies
• Go beyond third-party accreditations (HMRC has confirmed these alone are insufficient)
• Establish ongoing compliance monitoring, not just initial checks
• Request regular audit reports and documentation

3. Review Your Supply Chain Strategy

• Assess whether current umbrella arrangements remain commercially viable
• Consider alternative engagement models
• Evaluate the compliance credentials of all agencies and umbrella providers
• Update procurement and tender processes to reflect compliance requirements

4. Engage with Your Partners

• Open dialogue with recruitment agencies about their compliance preparedness
• Seek contractual clarity on liability and indemnification
• Request evidence of their due diligence processes

5. Prepare Internal Stakeholders

• Brief procurement, HR, finance, and legal teams
• Update internal policies and procedures
• Budget for potential compliance costs

The Broader Scope

The legislation's definition of "umbrella company" is deliberately broad and may capture entities beyond traditional umbrella companies, including professional employment organisations, employers of record, and potentially organisations supplying employed staff on secondment arrangements.

Additionally, the rules extend to "purported umbrella companies" , structures that appear PAYE-compliant but actually remunerate workers gross or through personal services companies to avoid tax obligations.

Looking Ahead

While HMRC is expected to issue further operational guidance before April 2026, businesses cannot afford to wait. The government has signalled an assertive enforcement approach, reflecting its objective to close the tax gap and eliminate distortion in labour market competition.

Organisations that proactively strengthen their supply chain compliance now will be better positioned to manage both the financial and reputational risks these changes present.

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This article provides general information about the April 2026 umbrella company legislative changes. It should not be relied upon as legal or tax advice for your specific circumstances.

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