The umbrella company market has seen its biggest change in years. From 6 April 2026, new rules make recruitment agencies — and in some cases end clients — responsible for PAYE that an umbrella company fails to pay. Further regulation of umbrella companies is also on the way. Here’s what you need to know.
What changed on 6 April 2026?
Where a worker is supplied through an umbrella company, the recruitment agency that contracts with the umbrella is now jointly and severally liable for the PAYE income tax and National Insurance due on that worker’s pay. If there is no agency in the supply chain, the liability falls on the end client.
In practice, this means HMRC can recover unpaid PAYE from the agency (or client) if the umbrella company doesn’t pay it — even if the agency didn’t know about the non-compliance.
Why has the government done this?
The change is designed to tackle non-compliant umbrella companies, including tax avoidance schemes and fraudulent “mini umbrella company” arrangements, which cost the Exchequer significant sums and often leave workers facing unexpected tax bills. Making agencies and clients share the risk gives them a strong incentive to use only compliant providers.
What recruitment agencies should be doing
- Map your supply chains and identify every umbrella company your contractors are paid through.
- Carry out robust due diligence on each umbrella, including its ownership, payroll processes and financial standing.
- Obtain evidence that PAYE is being operated and reported correctly, such as payroll reports and RTI submission records.
- Review and update contracts with umbrella providers to reflect the new obligations.
- Rationalise your preferred supplier list so that monitoring is manageable.
- Brief your teams on the cash-flow and reputational risks of non-compliance.
What it means for contractors
- Expect agencies to be more selective about the umbrellas they work with — and more questions during onboarding.
- Offers of unusually high take-home pay are an even bigger red flag than before.
- Check your payslips and your HMRC personal tax account to confirm your pay and tax are reported correctly.
More regulation is coming
The Employment Rights Act 2025 brings umbrella companies within the scope of employment agency regulation, with enforcement expected to sit with the new Fair Work Agency. Detailed rules are still being developed, with implementation currently expected from 2027. Agencies and umbrellas that already operate transparently and compliantly will be best placed for the change.
How My Pay Day supports agencies
My Pay Day Umbrella operates exclusively through standard PAYE, provides clear payroll evidence and consolidated invoicing, and never takes part in tax avoidance or loan schemes — helping agencies manage their new obligations with confidence.
Need help?
My Pay Day Umbrella provides fully compliant PAYE umbrella payroll for UK contractors and recruitment agencies, with same-day payments and insurance included. Email hello@mypaydayumbrella.com or visit our contact page to get started.
This article is general information, not tax or legal advice. Rules and thresholds can change, so check the latest guidance on GOV.UK or speak to a qualified adviser about your circumstances.
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