The government has published updated guidance on umbrella companies, introducing new rules on joint and several liability within labour supply chains.
The changes will take effect from 6 April 2026 and mean that, where an umbrella company fails to meet its pay-as-you-earn obligations, responsibility for unpaid tax and national insurance contributions will be shared. The umbrella company remains the employer and is required to correctly operate PAYE. However, other parties in the contractual chain may also be held jointly and severally liable, ensuring HMRC can recover amounts due.
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Under “several liability”, multiple parties are each responsible for only their own specific, individual portion of an obligation or debt.
An umbrella company is a kind of intermediary employer for temporary workers and contractors, handling their payroll, tax, and other employment obligations.
The changes are set out under Section 61Y Chapter 11 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003. Under them, where a client contracts directly with an umbrella company, liability will sit with both parties. If intermediaries are involved, the agency closest to the client will share responsibility with the umbrella company. Additional provisions apply when parties in the chain are connected or when overseas intermediaries are involved, with liability shifting to ensure a UK-based entity is accountable.
The guidance emphasises that liability applies regardless of which party makes the payment, provided the full amount owed is settled. HMRC has also made clear that it may pursue recovery from any relevant party, depending on the circumstances.
The new rules aim to prevent non-compliance in the umbrella market and protect workers’ tax contributions. The government has indicated that the guidance may be subject to revision before April 2026.
Crawford Temple, chief executive of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance, said the update confirms long-standing concerns for recruiters.
“HMRC’s updated guidance on joint and several liability confirms what I have been saying all along: agencies will carry liabilities they cannot control.. The manual makes it clear that if an umbrella fails to meet its PAYE obligations, HMRC will pursue recovery from the relevant parties in the chain – recruiters included.
“The fact that HMRC has published guidance this far in advance suggests the draft legislation will pass into statute largely untouched. Monthly checks and so-called guarantees do not remove the exposure. The only way for agencies to eliminate risk is to take direct responsibility for PAYE payments.”
Temple added that transparency and control must underpin agencies’ preparations ahead of April 2026, warning that failure to act could have serious financial consequences for recruiters and the wider market.
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