Umbrella companies – what’s new for 2025/26?
From a particular issue affecting umbrella workers in the 2025/26 tax year, to some good, new HMRC guidance designed to help you avoid problems, to some significant reforms being developed to improve outcomes for workers - there is a lot going on in the umbrella company landscape. Here we give you a quick roundup.
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Introduction
Issues continue to plague the umbrella company sector. Here we summarise some of the latest developments and news for umbrella workers. This should help you check any umbrella arrangements you are in, but also help you understand any communications you are seeing or receiving regarding potential changes on the horizon.
2025/26 employer NIC rate increase
From 6 April 2025, the rate of employer National Insurance contributions (NICs) increases by 1.2% to 15%. At the same time, the threshold for employer NICs reduces from £9,100 annually to £5,000. Employer NICs are paid by employers, but because of the way umbrellas work, the change in employer rate and threshold may affect you as well.
Unless your umbrella company receives an increase in money from the agency or end client to pay these higher employer costs, it is likely that the increase in employer NICs will have to come out of the existing assignment rate. The assignment rate is the rate paid to the umbrella company by the agency or end client. This means the umbrella will have less money to carve your gross pay out of.
Umbrella companies can do this because sometimes the type of employment contract they give you means your gross pay can be flexed up and down (provided they pay you at least the minimum wage).
If you find that you are receiving less money because of the increase in employer NIC, you could ask your umbrella company to try to renegotiate the overall rate with your agency or end client to account for the increase in the umbrella company’s employer costs. This may not be possible, but it is probably worth asking the question.
New HMRC guidance on umbrella company best practice
HMRC have published some helpful new guidance for umbrella companies. LITRG were pleased to be able to provide input into this guidance.
The guidance sets out a number of practical actions that umbrella companies can take to positively contribute to the temporary labour market. The actions are split into two sections - operating responsibly and providing a good service. The actions are grouped under different high-level headings including:
- Umbrella companies should be run by fit and proper people
- Umbrella companies should be financially viable
- Umbrella companies must follow the statutory requirements that apply to all employers
- Umbrella companies must accurately operate the payroll for their employees
- Umbrella companies should compete based on lawful practices
- Umbrella companies should be clear, open and honest in the information they provide their employees
- Umbrella companies should provide employee care
- Umbrella companies should provide recruitment agencies with the information they need to meet their legal obligations
This is essentially, a ‘what good looks like’ for the umbrella company market. It is written for umbrella companies, but will be useful to employment businesses, end clients and umbrella company employees as well – because if you conclude that an umbrella company is not demonstrating good practice in line with the guidance, you may choose not to work with them.
The new guidance can be found on GOV.UK here: Examples of good practice for umbrella companies in the temporary labour market - GOV.UK.
HMRC’s tool to help you check your pay and taxes
HMRC have also recently updated their GOV.UK Umbrella Company Pay Tool, which now reflects the 2025/26 rates and thresholds. You can find out more about how their tool works and why it can help you, in our website guidance.
Future developments
Tax related
In the Autumn Budget of 2024, the UK government announced that it would bring forward the third of three strategic options for preventing tax non-compliance within the umbrella company market – deeming the employment business (usually known as the recruitment agency) that supplies the worker to the end client to be the employer for tax purposes.
By changing the incentives and behaviours at play in supply chains, HMRC hope to tackle tax-non-compliance and to protect workers from unscrupulous practices like disguised remuneration.
At present there is a great deal of uncertainty about what exactly option three means and which mechanism HMRC might choose to adopt to give effect to option three. We will need to wait until we see the draft legislation before we can understand more about how option three will operate. This is due in Summer 2025 at which point we expect a small but important opportunity to input further, to help the government shape the most effective and workable version of option three possible.
Employment law related
In March 2025, the government issued a full response to their consultation on tackling umbrella company non-compliance. This contained an announcement that could help protect workers from certain employment rights related abuses when they work through an umbrella company.
The government plans to introduce a new regulatory framework for umbrella companies. This framework will align umbrella companies with existing recruitment agency regulation, ensuring they operate under the oversight of the Employment Agency Standards Inspectorate (which will later transfer to the Fair Work Agency).
The Employment Rights Bill contains the amendment to the definition of ‘employment businesses’ in the Employment Agencies Act 1973 to make this happen. It’s not law yet, but as set out on the parliamentary website, it should be soon.
The existing suite of recruitment agency regulations do things like:
- put restrictions on agencies requiring workers to use additional services,
- prohibit agencies from withholding payment to workers on certain grounds and
- help ensure that agency workers are given a contract before any work-finding services are provided by the agency and also a Key Information Document.
You can find more information about the regulations on GOV.UK. Amendments are needed to them, to make them more relevant to umbrella company operations. We expect that there will also be a consultation on these in due course.
More information
Once HMRC’s draft legislation for option three and the agency regulations consultation is published, we will produce further information to help you understand what this means for you, and how to have your say. Do check back for any updates.
In the meantime, for more information on working through an umbrella company and, in particular, finding a compliant one, see our website guidance and factsheet - recently updated for 2025/26 changes.
It may be useful for you to know that you can now request a free SafeRec ‘payslip audit’ via our website. The page where you can read more about the service, and a portal where you can agree our terms and conditions and upload your payslip and contractor reconciliation statement, can be found on our website.
