What are umbrella companies?
Umbrella companies are employment intermediaries that employ workers on behalf of agencies and end clients. Many umbrella companies operate diligently, supporting their employees and providing convenience and administrative benefits for agencies.
Some appear to be involved in tax avoidance
However, too many are used to facilitate non-compliance including tax avoidance and tax fraud. 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.
Evidence shows that non-compliant models continue to operate, causing harm to workers and funnelling taxpayers’ money to organised crime groups. This position is neither sustainable for taxpayers, nor fair to the businesses trying to compete honestly or the workers just looking to get paid correctly.
So what is changing – joint liability
This measure will take effect from 6th April 2026.
Income Tax PAYE
Legislation will be introduced in Finance Bill 2025-26 to amend Part 2 of ITEPA 2003. The legislation will introduce 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.
National Insurance Contributions (NICs)
Further legislation will be introduced to amend section 4A of SSCBA 1992 to provide HM Treasury with the power to make regulations imposing an equivalent joint and several liability for NICs purposes.
HMRC are coming after you!
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.
Responsibility
This measure will make recruitment agencies responsible for accounting for Pay As You Earn (PAYE) and Class 1 National Insurance (NICs) 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.
Make work pay
In conjunction with the government’s Plan to Make Work Pay, these changes are to help tackle low standards by some in the labour supply chain.
The impact
Around 700,000 individuals work through umbrella companies. The government anticipates that the measure will reduce non-compliance in the umbrella company market by preventing non-compliant umbrella companies from being given access to the market by recruitment agencies and end-client businesses. This will reduce the harm caused to workers by not having the correct tax deducted from their pay and remitted to HMRC. It may also, indirectly, reduce the harm caused by other types of non-compliance, such as a failure to properly provide statutory payments or employment rights.
What might change
If an agency decides to move a worker onto its own payroll rather than using an umbrella company, the worker may also see their employment status change to that of an agency “limb (b) worker”. They will have specific protections through the Employment Agencies Act 1973 and the associated Conduct of Employment Agencies and Employment Businesses Regulations 2003. Agency workers are also protected through the Agency Workers Regulations 2010. Information about agency workers’ rights can be found here: www.gov.uk/agency-workers-your-rights/your-rights-as-a-temporary-agency-worker.
Mini-umbrellas and equality
Males are estimated to make up around twice as many employees of umbrella companies as females. Employees of umbrella companies tend to be of working age, with few individuals aged over 65. For umbrella companies in general it is estimated that around 70% of employees are aged between 25-54, whereas this age range represents around 50% of the UK adult population.
Among the payrolls of mini-umbrella companies deemed highest risk, which are fraudulent and therefore more likely to be impacted by this measure, employees aged 18-34 are particularly overrepresented at around 50% of the population, compared to representing around 25% of the UK adult population.
How many agencies and umbrellas will this touch?
This measure will impact around 30,000 agencies and 400 umbrella companies who engage temporary workers.
PAYadvice.UK 29/11/2025