Umbrella company non-compliance is now a frontline risk for recruitment businesses and the Finance Act 2026 changes who HMRC can pursue when tax goes unpaid.
Why the Government is changing the rules
Tax non-compliance by some umbrella companies is seen as one of the biggest risks within UK labour supply chains. The Government’s view is that recruitment businesses are best placed to control which umbrella companies sit in the chain so it is shifting legal responsibility upwards.
What is changing from 6 April 2026
The Finance Act (published as the Finance Bill on 4 December 2025) amends ITEPA 2003 by introducing a new Chapter 11. In simple terms, for payments made on or after 6 April 2026 to workers supplied through umbrella companies:
- recruitment businesses can become jointly and severally liable with the umbrella company for unpaid PAYE and NICs
- HMRC can pursue either or both parties for any shortfall
The key point: strict liability
This is a strict liability regime. That means there is no statutory defence if PAYE/NICs go unpaid, regardless of fault, knowledge, intent, or the fact you carried out compliance checks. Even where documentation looked compliant, or a default results from fraud elsewhere in the chain, the liability can still land at the top.
What this means in practice
After April 2026, the recruitment business supplying the worker to the end client will carry the ultimate responsibility for correct taxation of the worker’s pay whether payroll is operated in-house or via an umbrella.
This won’t stop the use of umbrella companies, but it changes the risk profile dramatically.
Who is most exposed?
Businesses operating in sectors perceived to have higher non-compliance risk such as recruitment, medical, social care and education are likely to feel these changes most sharply.
Practical takeaway
If you’re relying on umbrella companies to run payroll, you’ll need to treat umbrella selection and monitoring as a core risk function, not an admin step.
How we can help
We can guide you through supply chain auditing, review your umbrella contracts and indemnities, and help you implement changes with minimal disruption to workers and clients.
Do not hesitate to contact me on lucy.tarrant@cognitivelaw.co.uk or call us on 0333 400 4499.