Umbrella companies — tackling non-compliance in the umbrella company market
LITRG have submitted comments on draft legislation introducing a new Chapter 11 into Part 2 of ITEPA 2003. The measure would make employment agencies, or in some cases end clients, jointly and severally liable for amounts that should have been accounted for under PAYE where an umbrella company is part of the labour supply chain.
LITRG have responded to HMRC’s draft legislation consultation, mainly focussed on looking at the reforms from the perspective of agency workers.
We welcome HMRC’s proposed reforms to tackle non-compliance in the umbrella company market. The new Joint and Several Liability (JSL) rules are an important step towards protecting workers, particularly those affected by disguised remuneration (DR). We broadly support the principle that agencies should be held accountable for umbrellas in their supply chain, but the success of the reforms will depend on operational delivery, visible enforcement, and a holistic approach.
Although we think the principle and law are largely sound, clarity is urgently needed on how JSL will apply in practice. HMRC should confirm the scope of liabilities (tax, NICs, student loans, apprenticeship levy), methods for quantifying and collecting liabilities, how the Regulation 80 appeal process will operate etc.
Guidance should also explain how this new regime interacts with Regulations 72/81 and section 684(7A) ITEPA, as for this policy to have the desired effect, it is important that workers are not pursued for underpayments that should fall elsewhere.
We highlight risks of unintended consequences including umbrellas facing weak incentives if not directly pursued, small agencies folding to avoid liabilities and disruption for workers moved to different umbrellas and in-house agency PAYE.
Finally, we note that another major reform is set to apply from April 2026 – the requirement for tax advisers who interact with HMRC on behalf of their clients to register with HMRC and meet minimum standards. We understand that external payroll providers will fall under the definition in the legislation but what about umbrella companies? If umbrella companies are intended to be covered by this legislation, HMRC must be mindful that the implementation date coincides with the commencement of joint and several liability – potentially a lot for umbrellas to contend with.
You can read LITRG’s full submission using the link provided. A link is also given to the original consultation on GOV.UK.