Umbrella companies are often used by temporary or contract workers who are paid through them, rather than directly by recruitment agencies or end clients.

The new rules are designed to target tax avoidance practices sometimes used by non-compliant umbrella companies, such as paying workers partly in ‘loans’ or non-taxable allowances to reduce or avoid income tax and national insurance. The legislation, which is still in draft form, clarifies that these arrangements are not legal and workers in such roles should be taxed as if they were regular employees.

A major change is the introduction of joint and several liability. From April 2026 recruitment agencies will be responsible for ensuring the correct tax is paid on workers' income. Where no agency is involved the end client will be liable. This means that if an umbrella company fails to pay the correct taxes HMRC can pursue any other parties in the labour supply chain for the unpaid amount. This change is intended to make all parties take greater care in who they work with.

If you or your business regularly interact with umbrella companies as a worker, an intermediary or the end client, contact us to discuss how these changes will affect you.