The government says it is committed to closing the tax gap and making the tax system fairer.
Good and bad umbrella
Many umbrella companies operate diligently, supporting their employees and providing convenience and administrative benefits for agencies.
..too many are used to facilitate non-compliance
However, too many are used to facilitate non-compliance including tax avoidance and tax fraud.
These incurs significant losses for taxpayers and can leave workers with unexpected tax bills.
non-compliant umbrella companies undercut compliant firms
In addition to causing significant harm to workers and taxpayers, non-compliant umbrella companies undercut compliant firms, threatening the viability of those businesses that do the right thing, as well as the functioning of the market itself.
Rogue umbrellas
HMRC works to warn people of the dangers of getting caught up in tax avoidance schemes operated by rogue umbrella companies and to help them to spot the warning signs.
Illegal schemes
Each year a significant number (nearing 200) of umbrella companies are found to have been operating illegal schemes designed to reduce their liabilities to HMRC.
An individual employed by such a company (even if totally unaware of any illegal activity) could find themselves subject to severe penalties.
What is changing?
Legislation in Finance Bill 2025-26 will amend part 2 of ITEPA 2003 introducing a new chapter 11 into part 2 to make employment agencies or end clients joint and severally liable for any amount required to be accounted for under the PAYE provisions where an umbrella company forms part of a labour supply chain.
Further legislation will be introduced to amend section 4A of Social Security Contributions and Benefits Act1992 to provide HM Treasury with the power to make regulations imposing an equivalent joint and several liability for NIC purposes.
Joint and several liability will allow HMRC to pursue an agency in the first instance for any payroll taxes that a non-compliant umbrella company fails to remit to HMRC on their behalf. The end client will be liable if contracting directly with an umbrella company.
Liability to be on the end client business
Umbrella companies are employment intermediaries that employ workers on behalf of agencies and end clients.
This new measure will make recruitment agencies responsible for accounting for Pay As You Earn (PAYE) and Class 1 National Insurance (NIC) on payments made to workers that are supplied via umbrella companies.
Where there is no agency, this responsibility will fall to the end client business.
PAYadvice.UK 16/8/2025