A few years ago, IR35 dominated conversations across the recruitment industry. Today the volume of discussion may have reduced, but it would be complacent to think the compliance risk has subdued with it.
The reality is that HMRC’s interest extends beyond a single piece of legislation.
While individual reforms come and go, regulators continue to focus on employment status, labour supply chains, tax compliance and umbrella arrangements. For many agencies, scrutiny is becoming less about a single set of rules to follow and more about demonstrating robust compliance throughout the supply chain.
Why scrutiny feels different today
The biggest compliance ‘headline’ moments historically centre around specific regulatory changes – like IR35. Recruiters would respond to any new requirements, update their processes and continue with daily operations.
In today’s world, the situation faced is different.
Employment status remains a contentious issue, umbrella company reform continues to generate debate, and expectations around supply chain transparency are increasing. Rather than focusing on one area of risk, agencies are being expected to show a wider understanding of how workers are engaged, paid and managed.
IR35 shouldn’t be overshadowed though. It still charts on the priority list for compliance. The focus has just zoomed out a little to take in the bigger picture.
Clients are asking more questions. Suppliers are facing greater scrutiny. And recruitment businesses are increasingly expected to demonstrate that they understand the risks within their labour supply chains, not just their own.
The shift from direct responsibility to supply chain responsibility
One of the biggest changes in recent years has been the growing focus on supply chain responsibility.
In the past, agencies were primarily concerned with their own contractual arrangements and tax obligations. Now, they’re encouraged to have visibility of the organisations operating around them, including umbrella companies, payroll providers and other third-party suppliers.
And it’s more than just “encouraged”. April 2026 saw joint and several liability (JSL) introduced, shifting responsibility for PAYE and Class 1 National Insurance from solely the umbrella’s shoulders and making recruitment agencies jointly liable for unpaid tax, regardless of intent, due diligence, or reliance on third parties.
The message is clear – compliance risk is becoming a supply chain issue. It might not start with you, but you can still be hit by the ripples of any fallout.
What areas are attracting the most attention?
While compliance requirements vary depending on an agency’s operating model, there are several areas that continue to attract attention.
Employment status
Few issues have generated as much debate as employment status for tax. Determining whether an individual is genuinely self-employed, a worker or an employee can have significant implications.
Recruitment businesses operating within contractor markets must ensure they understand the engagement models they’re using and the potential liabilities they could face if status is challenged.
There’s also the important difference between employment status for tax and status for employment law that shouldn’t be overlooked.
IR35
It might not dominate the headlines as much, but IR35 is still a crucial consideration for recruiters involved in off-payroll working arrangements.
Many organisations invested heavily in compliance processes following the reforms. However, ongoing assessments, documentation and consistency remain essential. A process implemented several years ago might not be sufficient forever.
Umbrella company arrangements
Umbrella companies continue to attract regulatory and industry attention. As discussions around reform continue, agencies working with umbrella providers are increasingly expected to understand how their supply chains operate.
This doesn’t simply mean choosing a provider and moving on. There are expectations around operational transparency and supply chain reviews.
The need for due diligence is beyond question, but it shouldn’t be just done in the hope it will keep HMRC at bay. Its primary purpose should now be to make sure there are no PAYE problems in the supply chain for HMRC to take a second look at in the first place.
It should enable you to trust the other parties in the supply chain implicitly.
Governance expectations
Perhaps the biggest trend is the growing importance of governance.
Clients increasingly want confidence that agencies have procedures in place to manage compliance risk. Questions around supplier vetting, record-keeping and oversight are becoming more common during procurement exercises and contract reviews.
As a result, strong compliance processes are increasingly becoming a commercial advantage rather than just a regulatory requirement.
What does greater scrutiny mean for recruiters?
For many agencies, increased scrutiny extends past the fear of more investigations:
- More administrative burden – Being under the microscope means agencies need to maintain clear records of employment status assessments, supplier due diligence, contractor arrangements and internal compliance processes.
- Greater client expectations – Clients are becoming more risk-conscious and often want reassurance that agencies have robust compliance procedures in place.
- Higher reputational stakes – Reputation damage can spread quickly through recruitment networks. Issues involving contractors, umbrella companies or other supply chain partners can affect client confidence and damage an agency’s own reputation, even if the underlying problem originated elsewhere in the chain.
- More personal accountability – Compliance can no longer be viewed solely as an operational responsibility – it’s becoming a key part of business leadership and risk management. As governance becomes a board-level issue, decision-makers may find themselves accountable for ensuring appropriate controls, processes and supplier relationships are in place.
Practical questions recruitment leaders should be asking
Growing scrutiny doesn’t mean agencies need to overhaul their entire operating model, but it does make sense to step back and assess whether current processes would stand up to closer examination. There are several key questions that can help leaders identify potential gaps before they become larger compliance issues:
- Can we clearly explain our contractor engagement model?
- Do we perform due diligence on third-party suppliers?
- Are our contractual processes up to date?
- Do we have documented compliance procedures?
- Would we be able to produce evidence if challenged?
- Have we reviewed where liability could sit across our supply chain?
- Do we have protections in place in case we need to defend our engagements?
So, what’s the message to recruiters
Recruitment agencies don’t necessarily need to fear increased scrutiny. Instead of a reason to panic, it’s a nudge to prioritise accountability, governance and risk management. As labour supply chains become more complex, agencies that invest in robust processes, strong due diligence and clear oversight will be far better placed to navigate whatever changes come next.
Compliance support
Navigating legislation and compliance can be challenging. Kingsbridge offers tailored support, including expert guidance on compliance strategies and risk mitigation, backed by specialist insurance solutions. Their team is dedicated to helping recruiters execute business operations compliantly and confidently.
If you’re still unsure or are looking for an expert to talk to, Kingsbridge can offer guidance on compliance strategies, and risk mitigation.
Speak to the Kingsbridge team – they’ll be more than happy to answer your questions.
Disclaimer: Any information in this article should be treated as general guidance. Always seek expert advice regarding your business’ specific circumstances.
