From 6 April 2026, the rules around umbrella companies are changing significantly. Joint and Several Liability (JSL) will make recruitment agencies financially responsible for unpaid PAYE tax — even when the umbrella company was supposed to handle it.
If your agency places off-payroll workers through umbrella companies, this affects you directly. Here's what's changing, what the risks are, and what your options look like.
What is Joint and Several Liability? Under the new rules introduced by the Finance Bill 2025-26, a new Chapter 11 is being added to Part 2 of the Income Tax (Earnings and Pensions) Act 2003. In practical terms, it means that if an umbrella company in your supply chain fails to pay the correct PAYE, National Insurance, or Apprenticeship Levy to HMRC, the debt can be transferred to your agency.
This isn't a theoretical risk. HMRC estimates that over a third of the 700,000 workers engaged through umbrella companies were placed with non-compliant providers — costing the Exchequer at least £500 million per year. The scale of enforcement is expected to be substantial.
There is no statutory defence This is the part that catches most agency directors off guard. Under the new legislation, there is no "reasonable care" defence. You cannot argue that you did thorough due diligence, that you only used accredited umbrellas, or that you paid the umbrella the correct amount.
HMRC has been explicit about this. At a stakeholder webinar, when asked whether an agency would still be liable if it could prove it had paid the umbrella correctly but the umbrella had not passed the tax to HMRC, the answer was a single word: "Yes."
The question HMRC asks is simply: was the tax paid? If not, the liability transfers to the next party in the chain — which is your agency.
What most agencies are doing about it The dominant response across the industry has been to invest in compliance monitoring. Tools like SafeRec, tighter Preferred Supplier Lists, accreditation checks, and enhanced due diligence processes are all sensible steps, and we'd encourage any agency to take them.
But it's important to understand what due diligence does and doesn't do in this context. It reduces the *probability* of working with a non-compliant umbrella. It does not reduce the *liability* if something goes wrong. You're still relying on a third party to remit tax correctly, and if they don't, the bill is yours regardless of what checks you ran.
There's also a reputational dimension to consider. If an umbrella in your supply chain is found to be non-compliant, headlines don't distinguish between "bad umbrella" and "agency that used them." For agencies placing workers into the public sector, regulated industries, or any client environment where supply chain compliance matters, the association alone can damage relationships.
An alternative approach: remove the umbrella entirely There is another option that's starting to get attention — running off-payroll workers on your own agency PAYE instead of routing them through an umbrella company.
The logic is straightforward. If there's no umbrella in the chain, Chapter 11 JSL doesn't apply. Your agency pays PAYE directly to HMRC under your own employer reference. Your liability is the same as any PAYE employer — known, bounded, and entirely under your control.
This isn't a loophole. HMRC's own policy paper on the umbrella company market changes acknowledges the possibility explicitly: "Some businesses may choose to administer their own payrolls rather than contracting with an umbrella company."
Why agencies haven't done this before If it were as simple as adding workers to your existing payroll, agencies would already be doing it. The reason they haven't is that off-payroll workers inside IR35 have a specific tax treatment that sits between permanent employees and agency temps.
They're taxed at source like employees, but they aren't your employees. They don't accrue holiday, sick pay, or pension entitlements through your agency. Most standard payroll software is designed for one or the other — permanent staff or temps — not for this in-between category.
Getting the tax treatment, deductions, and RTI reporting right for off-payroll workers requires purpose-built software. That's what we've built at Hubbado — a platform that lets recruitment agencies run off-payroll workers on their own PAYE correctly, without creating employment obligations and without replacing their existing payroll system.
We already run this for agencies in our own group, and the platform is designed for any agency that wants to take this approach.
Looking beyond April 2026 JSL isn't the end of the regulatory changes affecting umbrella companies. The Fair Work Agency is expected to introduce further umbrella company regulation from 2027, and the broader direction from HMRC is clear: simpler supply chains, clearer accountability, and fewer intermediaries.
Each new regulation adds cost and complexity to the umbrella model. Removing the umbrella now doesn't just address JSL — it positions your agency ahead of where the regulatory landscape is heading.
What to do next If your agency places off-payroll workers through umbrella companies, the April 2026 deadline is approaching quickly. There are broadly two paths:
Strengthen your umbrella compliance. Invest in due diligence, tighten your PSL, and accept the residual risk that comes with relying on third parties to pay tax correctly. This is the mainstream approach and it's better than doing nothing.
Remove the umbrella from the chain. Run off-payroll workers on your own PAYE and eliminate JSL exposure entirely. This requires the right software infrastructure, but it removes the risk rather than managing it.
We've written in more detail about how the second approach works on our Eliminate JSL Risk page, or you can get in touch directly at contact@hubbado.com to talk through whether it makes sense for your situation.
