Jonathan Athow, Director General of Customer Strategy and Tax Design, HM Revenue and Customs (HMRC) explains why joint and several liability is the right approach for the umbrella company market.
The recruitment industry has been at the heart of the UK’s labour market for decades, connecting skilled workers with businesses that need them and thereby supporting economic growth across the country. But for too long, honest recruitment agencies have been undercut by unscrupulous actors, including criminals, who exploit umbrella company structures to dodge their tax obligations. This puts workers at risk of unexpected tax bills, as well as depriving the Exchequer of money that should fund our public services.
That’s why, from April 2026, the Government is introducing new rules to make recruitment agencies responsible for Pay As You Earn (PAYE) when they use umbrella companies to employ workers. This is not about punishing the recruitment sector, rather it is about protecting it from those who are trying to game the system
The scale of the problem
In 2022-23, umbrella companies were used to engage at least 700,000 workers. But more than 275,000 of these workers – over a third – were engaged at some point by umbrella companies that failed to comply with their tax obligations. In that same year, the public purse lost out on £500 million in revenue to disguised remuneration tax avoidance schemes alone, almost all facilitated by umbrella companies, with hundreds of millions more lost to mini umbrella company fraud.
These are not victimless crimes. Not only do we lose funding for our vital public services, but workers can be left facing unexpected tax bills when schemes collapse. Meanwhile, compliant businesses are systematically undercut by competitors who simply do not pay what they owe.
Understanding Joint and Several Liability
Under the new rules, recruitment agents will be considered ‘joint and severally liable’ for PAYE when they supply a worker. Some in the industry have expressed concern about what this means in practice. Let me be clear: this is not about HMRC spreading one umbrella company’s debts across every recruitment agency in the market. The liability is specific and targeted.
Joint and several liability applies only to the specific recruitment agency that has a contract with the end client to supply a particular worker, and only for the PAYE relating to that specific worker. If there is no recruitment agency involved, the responsibility falls to the end client.
Protecting compliant businesses
The new rules do not prevent recruitment agencies from using umbrella companies. Many umbrella companies operate entirely legitimately, providing valuable services to agencies and workers alike. What the rules do, is ensure that when agencies choose to use umbrella companies, they have a clear incentive to choose compliant ones.
Dodgy umbrella companies often entice people in with misleading claims about helping them pay less tax. The old adage stands true here: if it looks too good to be true, it almost certainly is. Recruitment agencies can limit the risk to themselves by conducting proper due diligence on the umbrella companies they work with. This means checking that the umbrella companies they work with are paying PAYE correctly, maintaining proper records, and operating as legitimate businesses rather than criminal enterprises. Many agencies already do this as good business practice.
We have published comprehensive guidance on the rules, plus red flags that might indicate tax avoidance schemes or fraudulent operations. We have also developed an online tool to help workers and agencies understand what correct pay from umbrella companies should look like.
The evidence question
There has been debate about what level of due diligence or audit trail will protect agencies from liability. While good record-keeping helps agencies make informed decisions, it will not affect where the liability falls as our focus is on outcomes.
The key question is simple: has the PAYE been paid? If an umbrella company fails to pay what it owes to HMRC, the recruitment agency becomes liable regardless of what paperwork it has collected or other due diligence it has taken. This is a clear and unambiguous position that creates a powerful incentive for agencies to work only with umbrella companies they can trust to meet their obligations.
Some have suggested that agencies should pay PAYE directly to HMRC to be completely safe. That is certainly one option agencies can choose, but it’s not the only way to manage risk. The crucial thing is ensuring that whoever is responsible for PAYE actually pays it.
Supporting a better market
These new rules are expected to raise more than £700 million for the public purse in its first year alone – money that would otherwise be lost to the non-compliant. But the benefits go far beyond revenue collection.
By removing the unfair advantage that non-compliant umbrella companies have enjoyed, we are creating a level playing field. Good companies should not be undermined by bad ones. This will ultimately benefit workers, who will have better protection from exploitation, and compliant businesses, who will no longer be systematically undercut.
We are committed to working with the sector to ensure smooth implementation, including publishing detailed technical guidance well before the rules take effect.
Looking ahead
The recruitment sector has a vital role to play in Britain’s economy. These changes will help ensure it can continue to fulfil that role while operating on a fair and legal basis that benefits everyone – workers, businesses and taxpayers alike.
