The new umbrella company legislation, coming into effect in April 2026, introduces joint and several liability for unpaid payroll taxes in the supply chain, meaning recruitment agencies and sometimes end clients, will be responsible if umbrella companies fail to pay the correct tax. Proactive steps are essential for agencies and clients to remain compliant, protect workers, and reduce financial risk.
What’s Changing in April 2026
- Recruitment agencies that engage workers via umbrella companies will become jointly and severally liable for any unpaid PAYE and National Insurance if the umbrella fails to meet its obligations.
- End clients take on this liability in the absence of a recruitment agency, for example if they contract directly with an umbrella.
- Umbrella companies will be more tightly regulated, with updated definitions and increased scrutiny under the Employment Rights Bill and oversight from the Fair Work Agency.
What This Means for Agencies and Clients
- Agencies can no longer outsource compliance risk solely to umbrellas responsibility is now shared.
- If an umbrella company is non-compliant, HMRC may pursue the agency (or client) for any unpaid tax, even if due diligence checks were performed.
- Due diligence, contractual protections, and visible compliance are all critical to reduce exposure.
How to Prepare: Practical Steps
- Audit all supply chains: Conduct regular audits of umbrella company compliance, including robust review of PAYE, right-to-work documentation, and supply-chain transparency.
- Update contracts: Ensure terms with umbrella companies provide warranties and indemnities regarding tax and legal compliance.
- Tighten due diligence: Thoroughly vet new and existing umbrella companies for compliance standards, accreditations, and operational integrity.
- Staff training: Educate payroll, HR, and compliance teams about shifting responsibilities and the importance of ongoing monitoring.
- Monitor legislative updates: Stay closely informed of any changes before April 2026, ensuring preparations align with the latest HMRC guidance.
- Document all processes: Maintain detailed records of due diligence, selection criteria, and compliance checks for every contractor supplied.
Riddingtons Payroll: Expert Guidance and Support
Riddingtons Payroll helps agencies and end clients:
- Navigate the updated regulatory landscape and implement best-in-class compliance practices.
- Review supply chain arrangements for tax risk and suggest process improvements.
- Provide full support with contracts, audits, and staff training, so businesses remain secure and compliant as the new rules take effect.
By acting now, clients and agencies can safeguard against unexpected liabilities and continue to offer compliant umbrella payroll solutions as the new legislation arrives in April 2026. As an FCSA Compliant Partner Riddingtons Payroll is the right choice for your contractors.
