Umbrella Company Reform: What UK Businesses Need to Know Ahead of 2026

The government is tightening up on non-compliant labour supply chains. From 6 April 2026, new rules will make UK-based agencies and end clients jointly responsible for unpaid PAYE liabilities linked to umbrella company workers.

This marks the next phase of HMRC’s crackdown on tax avoidance in temporary labour markets, following the IR35 reforms, which shifted off-payroll working assessments to end clients.

Who Will Be Liable?

From 6 April 2026, HMRC will have the power to pursue recruitment agencies for any unpaid payroll taxes where a non-compliant umbrella company fails to remit PAYE or NICs. This is because the agency and the umbrella company will be jointly and severally liable for those debts.

Where an end client contracts directly with an umbrella company, the end client will instead bear the PAYE liability. In both cases, HMRC can also transfer liability further up the chain if it believes a business knew or should have known about non-compliance in its labour supply chain.

The reform doesn’t change how much tax workers owe.  It determines who pays if things go wrong.

Why the Change?

While many Umbrella companies operate PAYE properly, HMRC has reported there is widespread abuse.

If HMRC believes a business knew or should have known about fraud in its labour chain, it can deny VAT recovery as well as pursue PAYE debts from the agency or end client.

Hidden Risk: Occasional Secondments

The rules will use a broad definition of “umbrella company.” Even businesses that second staff occasionally could be caught, even if labour supply isn’t their core activity.

What Businesses Should Do Now

The reforms place far greater emphasis on due diligence. Before engaging any umbrella company, agencies and end clients should:

• Check credentials – ensure the provider is UK-based with legitimate directors.

• Review payroll – confirm PAYE and NICs are correctly calculated and paid.

• Request evidence – obtain proof of compliance.

• Avoid red flags – such as offshore ownership or unrelated business activities.

• Work with established providers – reputable firms reduce exposure to risk.

Some agencies may relocate offshore to avoid the rules, leaving end clients liable, meaning building relationships with trusted UK-based partners is vital.

How We Can Help

If your business uses umbrella companies, contractors, or agency workers, now is the time to review your arrangements as greater HMRC enforcement is expected. We can help you assess exposure, review contracts and supply chains, and implement compliance checks to prepare for the 2026 reforms.

Do not hesitate to contact our team to discuss how to protect your organisation from unexpected tax risks.