Key takeaways

The new rules will apply to payments made to umbrella company workers on or after 6 April 2026. In order to prepare for the new rules, companies should:

• Identify any circumstances where they contract directly with an umbrella company and, in those cases, conduct regular due diligence to ensure that the umbrella company is meeting its PAYE and NICs obligations,
• Ensure that it only deals with UK resident agencies for individuals working in the UK via umbrella companies,
• Ensure that any agency supplying UK workers is not connected with the umbrella company.

This means that companies will likely need more information about the contractual chain between them and the individual worker to assess whether there is an umbrella company and, if so, to assess which other company is jointly and severally liable should PAYE and NICs not be operated.

Whilst this is likely to increase the diligence for end clients, it does not prohibit them from dealing with umbrella companies. Umbrella companies can be a useful and legitimate means of supplying labour and these new rules do not increase the liability if the umbrella company is already meeting its PAYE and NICs obligations.

In more detail

Under the current rules, an umbrella company (as employer) would be liable for PAYE and NICs. In order to increase compliance and level the playing field for compliant umbrella companies, the Government is proposing to make another party jointly and severally liable. This means that the other party would be liable if the umbrella company is not meeting its obligations. Under the new rules:

• An umbrella company is defined as one that:
  • Carries on a business of supplying labour,
  • Is not a personal service company (i.e., the worker does not have a material interest in it),
  • Receives consideration for the services of its employees either based on a contract between the end client and the umbrella company or as a consequence of a contract between the end client and an agency.
• The company that will have the joint and several liability is primarily the agency that contracts with the end client, except where:
  • The end client contracts directly with the umbrella company,
  • The agency is connected with the umbrella company, or
  • The agency is non-UK resident.
• In these cases, the end client will have the joint and several liability with the umbrella company.
• There are also provisions relating to 'purported umbrella companies' which are companies that do not strictly meet the definition of an umbrella company but either:
  • One or more parties to the arrangement would assume that the purported umbrella company employed the worker when they do not, or
  • The worker holds a material interest in the purported umbrella company and one would suppose that the purported umbrella company would pay the worker a substantial portion of the amount received as earnings when they do not.
• For purported umbrella companies, the worker will be treated as employed by the purported umbrella company such that HMRC can pursue the agency or end client, as applicable, in the case of non-compliance.