“Umbrella Company” and “Purported Umbrella Company”
The new rules don’t just target traditional umbrella companies. They also introduce a new concept: the “purported umbrella company”.
When liability shifts up the supply chain
From 6 April 2026, if an umbrella company does not pay the correct PAYE or NICs, the recruitment business at the top of the labour supply chain can be jointly and severally liable.
If there is no recruitment business in the supply chain (because the client contracted directly with an umbrella), or the recruitment business is connected to the umbrella or based outside the UK, the end client can become jointly and severally liable with the umbrella.
What counts as an umbrella company?
The definition is wider than many people expect. It can include:
- traditional umbrella companies
- employers of record (EORs)
- hire-train-deploy consultancies employing individuals and deploying them to clients
- recruitment businesses employing agency workers under contracts of employment
The big addition: “purported umbrella companies”
A “purported umbrella company” is designed to catch intermediaries that present as employers (or are assumed to be employers) but actually avoid accounting properly for PAYE/NICs, including by paying workers off-payroll.
Examples include entities that:
- Hold themselves out as the employer, but aren’t
For example: they tell the agency/client they employ and payroll the worker, but actually pay gross via a PSC or through CIS. - Operate “payroll-only” / referral arrangements
This can apply where a worker is referred to an MSP or recruitment business to be paid on reduced margin or “payroll-only” terms, even though that entity did not provide work-finding services for the role. - Run arrangements where the worker has a material interest
If the structure looks like most of the worker’s income should reach the worker, but in fact the arrangement diverts income elsewhere, it may be caught.
Why it matters
If there is confusion, intended or not, about how workers are paid or expected to be paid, that can be enough to create “purported umbrella” risk. Crucially, lack of knowledge is no defence to joint and several liability.
Recruitment businesses should treat the payment pathway as a legal risk: if you cannot clearly evidence how the worker is paid and taxed end-to-end, you may be exposed.
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.