Umbrella Company Reform: What Agencies and End Clients Must Do Now
The publication of the draft Finance Bill 2025 signals a significant turning point for recruitment agencies and end clients who engage contractors via umbrella companies. With sweeping new rules on tax liability and compliance, the Government is making it clear: everyone in the supply chain is now accountable.
If you’re a recruitment agency or end client, here’s what you need to know — and the practical steps you must take before the new rules take effect in April 2026.
Why This Matters to You
Historically, if an umbrella company failed to pay the correct Income Tax or National Insurance, HMRC pursued the umbrella provider alone. Under the new legislation, you could be held liable too.
From April 2026, Joint and Several Liability (JSL) will apply. If an umbrella company fails to pay what’s owed, HMRC will be able to pursue the recruitment agency or the end client for the debt. This change raises the stakes and makes thorough due diligence absolutely essential.
The draft legislation also defines what constitutes an umbrella company for the first time, helping close tax avoidance loopholes like mini-umbrellas and disguised remuneration schemes. The Government’s goal is to ensure fairness, compliance, and protection for workers across the labour market.
Key Actions for Agencies and End Clients
1. Review Your Preferred Supplier List (PSL)
Immediately begin auditing your PSL of umbrella companies. Any provider that cannot demonstrate full compliance should be removed.
- Only retain umbrellas that are FCSA-accredited or SafeRec-certified
- Ask for documented evidence of their PAYE processes and payroll audits
- Check they’re not named on HMRC’s list of tax avoidance schemes
2. Revisit Your Contracts and Oversight Procedures
Top-of-chain agencies will carry legal responsibility under the new rules. You must:
- Add contractual clauses to hold umbrellas accountable for compliance
- Document and monitor your due diligence processes
- Regularly review payment flows and tax deductions
3. Educate Your Internal Teams
Ensure your consultants, compliance teams, and legal teams understand the implications of the Finance Bill. Mistakes in umbrella selection or due diligence could now carry financial and reputational risk.
What Will HMRC Expect?
The Government’s policy paper emphasises the need for strong and consistent due diligence. Recruiters will not be deemed employers under this bill, but they are expected to actively monitor their supply chains.
It’s no longer enough to claim you didn’t know a scheme was non-compliant. Agencies and clients must prove that they took reasonable steps to ensure workers are paid properly and in line with tax law.
How to Future-Proof Your PSL
The safest way to move forward is by working only with umbrellas that meet independent compliance standards.
- FCSA-accredited companies undergo regular, rigorous audits.
- SafeRec-certified providers use real-time payslip scanning and data-backed audits.
These frameworks are recognised in the industry and offer reassurance that the provider is operating transparently.
Don’t Wait Until 2026
With legislation expected to be passed in early 2026 and enforcement beginning from 6 April that year, the time to act is now.
- Begin compliance reviews this quarter
- Update contracts and PSLs before the end of the year
- Communicate changes clearly to contractors and umbrella partners
Need Help Finding Compliant Umbrella Companies?
If you’re unsure whether your PSL is up to scratch, we can help.
At UmbrellaCompanies.org.uk, we work with a curated list of Top 10 umbrella companies, all of whom are independently vetted for transparency, compliance and contractor care.
Complete our short form and we’ll connect you with a trusted provider who understands the new landscape — and can support your supply chain with confidence.
Stay ahead of the changes. Protect your business. Choose compliance.
