The Government has published draft legislation, confirming that from April 2026, recruitment agencies will become jointly and severally liable for PAYE and National Insurance Contributions (NIC) where labour is supplied through umbrella companies.
The legislation forms part of the draft Finance Bill 2025 and will impact payments made to outsourced workers from 6 April 2026.
This marks a significant shift in the compliance landscape for the recruitment sector and any business engaging outsourced workers.
Key points
HMRC will be able to pursue agencies or end clients for unpaid payroll taxes where an umbrella company fails to meet its obligations.
The measure is intended to reduce tax non-compliance, protect workers and ensure a level playing field across the sector.
Separate regulations covering NIC are expected but have not yet been published.
What You Need to Know
The draft legislation gives wide-ranging powers to HMRC to lay accountability at the doors of recruitment agencies.
Whilst there is still uncertainty about how the rules will operate in practice, but some points are clear:
HMRC will enforce the new rules by raising determinations (assessments) in the name of parties who it believes are jointly liable. These assessments can be estimated based on information available to HMRC.
From April 2026 will be no defence for an agency to say that it relied upon fraudulent documentation showing PAYE compliance.
Where there is no agency and a client engages directly with an umbrella, the client will share the risk. There are also special provisions regarding offshore supply chains.
Some parts of the draft legislation are still unclear or broad
Agencies could fall within the definition of an umbrella company, particularly if they employ workers directly, such as following a TUPE transfer and therefore derive risk for their clients.
The rules may also override existing agency tax legislation and IR35 to drive a more direct route to assessment.
There are also inconsistencies between employment and deemed employment for tax.
This broad approach may be intentional, providing HMRC with greater flexibility to act or at least to apply pressure. Further guidance is expected, but for now the risks of engaging with non-compliant umbrella companies are continuing to increase.
It is important for recruitment agencies and end clients to start reviewing their arrangements and prepare for the upcoming changes.
Dains will be hosting an event in October to explore these changes in more detail. If you’d like to speak to one of our specialists sooner, please (book a short update meeting) with our team.