Umbrella company shake up – workers, are you ready?

Following years of growing concerns about umbrella company non-compliance, the government is finally moving to tighten things up. Whether you’re a contractor or an agency worker there are two sets of reforms coming – one focussed on tax compliance, and the other on employment rights. Both have the potential to reshape the way umbrella companies operate and how workers are treated – even where you are already in a compliant arrangement that you are perfectly happy with! Here's what you need to know.

Joint and several liability: a game-changer for PAYE compliance

One of the reforms is the introduction of joint and several liability (JSL) from April 2026 for Pay As You Earn (PAYE) tax liabilities incurred through umbrella company arrangements. This means other businesses in the supply chain — not just the umbrella company as the employer — could now be held responsible for their unpaid PAYE if something goes wrong.

This reform aims to target the structural use of PAYE avoidance to increase competitiveness or profitability in labour supply chains — for example where disguised remuneration is used to artificially inflate take-home pay or reduce tax liabilities. Such schemes often involve the umbrella company employer failing to operate PAYE properly. Although the law says the employer should really be responsible for this, HMRC’s current approach can result in workers themselves receiving unexpected tax bills, even where they did not have an avoidance motive. The new rules aim to increase accountability by changing incentives and behaviours across the supply chain.

HMRC have recently released the draft legislation that will give effect to JSL. There is an 8-week technical consultation period, closing on 15 September 2025. This provides a small but important opportunity for interested parties to raise issues or suggest improvements to the wording or clarity of the law.

We are reviewing the legislation and will be feeding in key points, particularly around risks for workers, some of which we outline below. If you’d like to share your thoughts on the draft legislation, we’d be happy to hear from you. You can get in touch with us using this contact form. Please note that the core policy has been set out clearly and major changes are unlikely at this stage.

What could JSL mean for workers?

When introduced, JSL could significantly change the landscape. Some likely implications include:

• Umbrella companies operating differently – if you are currently being paid in a non-compliant model you may see changes to your pay and taxes. In particular, you may see some reductions in your take home pay if you stop being paid through disguised remuneration.
• Increased vetting of umbrella companies before they're added to preferred supplier lists – this could result in fewer umbrella company options and may mean workers have to switch providers, with knock-on administrative burdens, for example starter/leaver issues and breaks in employment continuity.
• Heightened reluctance by agencies and end clients to work with umbrella companies – agencies and end clients may move more workers onto in-house PAYE/direct contracts to reduce exposure. This may come with some of the administrative burden noted above and also potential implications for employment rights. But a key question for us, is whether some agencies might adopt similar practices to non-compliant umbrella companies in order to pass on new costs or responsibilities; and if they do, whether insolvency awaits if HMRC pursue them. It is our view that HMRC will need to make sure that their compliance focus reflects the new rules and any emerging risks.

JSL – other practical points

Although the reforms don’t take effect until April 2026, this is a significant shake up and the labour supply industry may begin adapting much sooner. It is important that you monitor communications from your umbrella company/agency/end client regarding any changes to your employment arrangements and review them carefully, seeking professional advice if necessary. See our getting help page for more details.

Additionally, under JSL, we are going to see changes in who HMRC hold responsible if things go wrong. It strikes us that for this policy to have the desired impact, HMRC will need to stop pursuing PAYE underpayments from workers in the first instance – potentially even ones that have chosen to take a risk in a non-compliant scheme. We are continuing discussions with HMRC, but it will be important for them to clarify their position and set out when, if ever, liabilities could sit with workers and how their operational processes will change to reflect the new rules.

Employment law related changes also on the horizon!

The second reform relates to employment law, potentially giving workers new routes for redress if their employment rights are abused by umbrella companies.

Under new proposals, the government plans to regulate umbrella companies by including them in the definition of “employment businesses” under the Employment Agencies Act 1973. This means they will be regulated by the Employment Agency Standards Inspectorate (EAS), with oversight later transitioning to the proposed Fair Work Agency, expected to be established in April 2026.

The Employment Rights Bill contains the amendment. Although the Bill is due to get Royal Assent soon, we understand that this particular provision will be scheduled to come into force in 2027.

Some stakeholders had called for stronger provisions — such as mandatory licensing or a regulatory framework based on pre-existing codes of conduct — but these proposals were not accepted.

Limitations of regulation

As it stands, umbrella companies will be regulated in the same way as recruitment agencies are regulated.

You can find more information about the existing suite of recruitment agency regulations on GOV.UK. Amendments will be needed to these regulations, to make them more relevant to umbrella company operations. We expect that there will also be a consultation on these in Autumn 2025, ready to come into force alongside the expanded definition in 2027.

The extension of regulation to umbrella companies is a welcome step, but workers should understand its limitations, for example:

• The existing regulatory model is relatively narrow and may not address all employment abuses in umbrella structures.
• The EAS, in its current form, has limited resources and enforcement powers.

We will be recommending creative and ambitious thinking during the consultation to ensure the regulations are robust and responsive to workers’ real experience.

Where else can I go for help with employment rights issues?

It is hoped that the JSL tax changes from April 2026 will have an indirect impact on how umbrellas companies are dealing with employment rights – and that is before regulation is even introduced. 

However, should you experience issues, you will need to rely on existing support and enforcement routes, including:

• HMRC’s National Minimum Wage team — for underpayment issues
• The Gangmasters & Labour Abuse Authority  — if your sector falls under its remit (including: agriculture, shellfish gathering, food processing and packaging)
• The EAS — which may be able to assist if your issue overlaps with agency regulation
• Employment Tribunals — the main route for enforcing holiday pay and other rights (though this process can be costly and complex)

Encouragingly, the Fair Work Agency will eventually be given new powers to enforce holiday pay, though the timeline for this is still to be confirmed.

Be aware of emerging risks

So, there is a lot going on and big changes ahead.

While the reforms aim to protect workers, the transition may bring some risks and disruption. You should continue to be on the lookout for different types of non-compliance by certain umbrella companies who may change their practices before the reforms take effect. 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, which can help you identify if your pay and taxes are being handled correctly. 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.