UmbrellaSure – a sub-brand of Qdos – have noted the publication of a policy paper immediately after the Budget sending a firm reminder to recruitment agencies and umbrella companies of the changes set to impact the umbrella industry in April 2026.
The paper reiterates that on 6th April 2026, recruitment agencies will be responsible for ensuring that umbrella companies they engage are making the correct PAYE tax and National Insurance deductions for workers.
Under ‘joint and several liability’, HMRC has the remit to pursue the recruitment agency in the first instance for any payroll taxes that a non-compliant umbrella company doesn’t pay. When no agency is involved, this liability will fall to the end-client. The legislation will be introduced in the 2025/26 Finance Bill.
The paper outlines the government’s three objectives as a result of this incoming policy:
- To close the tax gap by protecting taxpayers and the Exchequer from significant losses caused by the fraudulent activities of some umbrella companies. This will also reduce the large sums of money going to organised criminal gangs involved in labour supply chain fraud.
- To prevent workers facing large, unexpected bills for Income Tax and NICs that have not been paid to HMRC by non-compliant umbrella companies.
- To ensure that the temporary labour market operates on a level playing field by preventing fraudulent operators under-cutting the compliant businesses that operate within the rules.
The proposals are expected to net the Treasury an additional £715m in tax in the 2026/27 tax year, £540m in 2027/28, £425m in 2028/29 and £255m in 2029/30.
The paper also states that it will impact approximately 700,000 workers who operate via umbrella companies, 30,000 recruitment agencies and some 400 umbrella companies in the UK.
Across the industry, HMRC estimates that businesses impacted will incur one-off £9.9m cost overall, with the ongoing cost of ensuring compliance in line with the reform expected to sit at £21.7m for the industry overall.
“Many agencies and umbrella companies have been busy preparing for these changes, but this is a clear reminder from the government that the clock is ticking towards April 2026,” said Sam Cox, of UmbrellaSure. “Along with this policy paper, the Budget reiterated the government’s commitment to putting a stop to tax avoidance. It’s no secret that tackling rogue operators within the umbrella industry is a priority – and is likely to be a key focus in Westminster in coming years.
“With the changes just months away, agencies that utilise payroll companies would be prudent to carry out a thorough review of their PSLs in the lead up to these reforms, and keep an eye on future updates on best practice guidance and risk mitigation,” Cox concludes.
