The UK government has unveiled draft legislation—set to take effect on 6 April 2026—that will reshape liability in labour supply chains involving umbrella companies. Under the proposed changes, recruitment agencies or, where no agency is involved, the end client will become jointly and severally liable alongside the umbrella company for PAYE (Pay As You Earn) and National Insurance Contributions (“NICs”) owed to HMRC.

Historically, umbrella companies, which employ temporary workers and manage payroll, served as a buffer against tax and National Insurance risks emanating from IR35 reforms. However, non-compliance by some in this sector has led to substantial tax losses—estimated at over £500 million annually. With this new legislation, liabilities no longer rest solely with umbrella providers; HMRC can now pursue the agency or client directly in cases of default.

This is a strict-liability regime: no statutory defence exists. Even due diligence, misrepresentation by the umbrella, or use of accredited providers does not shield agencies or clients from financial exposure. Additionally, so-called “purported umbrellas” will also be captured under the legislation—preventing avoidance through creative structuring.

The implications for businesses are profound. Recruitment agencies and end clients must now prioritise robust governance and compliance frameworks—conducting thorough due diligence on their supply chains, auditing umbrella partners, and ensuring clear contractual safeguards. Rather than shifting payroll internally, the focus should be on partnering with fully compliant, transparent umbrella providers who can demonstrate real-time payroll visibility, HMRC-audited trails, and consistent employment practices. Choosing the right partner—like Accuratus Green Payroll—will be essential not only for protecting workers but also for safeguarding your organisation from financial and reputational risk under the new joint liability regime.

Ultimately, while compliant umbrellas remain a viable route, the new legislation represents a strategic shift: responsibility now travels up the chain, placing risk squarely on those who coordinate and receive labour—ushering in a new era of accountability and due diligence in the UK’s flexible workforce market.

Article written by: Teresa Gradziel, Marketing Director at Accuratus Green Ltd