Changes are coming to how parties engage with umbrellas companies within the recruitment process – these will come into effect in April of next year.
Read on to find out how this could affect your role:
What’s Changing?
The government is introducing new legislation through the Finance Bill 2025/26 to address non-compliance in the umbrella company market. This marks a significant shift in how liability is handled across the supply chain.
What Is an Umbrella Company?
An umbrella company employs contractors working on temporary assignments. It manages their payroll, tax deductions (PAYE and NICs), and administrative responsibilities—allowing contractors to be treated as employees rather than self-employed.
What’s the Impact?
From 6 April 2026, public bodies, recruitment agencies, and intermediaries can be held jointly liable for any unpaid PAYE and NICs if they engage with non-compliant umbrella companies.
This is a major change: Liability will no longer rest solely with the umbrella company—it will extend across the entire supply chain.
Why Is This Happening?
The reform aims to:
- Tackle tax avoidance in the labour supply chain.
- Ensure a level playing field for compliant businesses.
- Protect workers from unexpected tax liabilities due to non-compliant providers.
When Does It Take Effect?
These changes will come into force from 6 April 2026.
What Happens Next?
To prepare for the changes, agencies and end clients must:
- Strengthen due diligence processes.
- Conduct stress testing and compliance checks on all umbrella companies they engage with.
ECC’s Approach to Umbrella Company Compliance
Essex County Council ensures compliance with current and upcoming legislation through the following measures:
- FCSA or APSCo Only Engagement -We only engage with umbrella companies accredited by the Freelancer & Contractor Services Association (FCSA) or the Association of Professional Staffing Companies (APSCo) to ensure high standards of compliance and transparency, and worker protection. As part of our supply chain onboarding agencies are required to commit to this standard and verified by our procurement team.
- Pre-Placement Audits – All umbrella companies are audited before a worker begins a placement, verifying PAYE operation, tax submissions, and employment practices.
- Ongoing Monitoring – We conduct regular reviews of umbrella partners to ensure continued compliance and respond swiftly to any risks or changes in status.
Key Points to Remember
Shift in Responsibility
If an umbrella company fails to meet its tax obligations, HMRC can pursue the agency or end client for the outstanding liabilities.
Increased Due Diligence
Agencies and clients must actively verify the compliance status of umbrella providers—this includes reviewing payroll practices, tax submissions, and accreditation.
Risk of Unpaid Taxes
Engaging a non-compliant umbrella company could result in significant financial risk for your organisation.
Future Regulation
These reforms are separate from the broader regulation of umbrella companies expected under the Employment Rights Bill in April 2027, which will fall under the remit of the new Fair Work Agency.
If you have further questions, please get in touch with us via email at essexsharedservices@essex.gov.uk