From 6 April 2026, liability for National Insurance contributions in umbrella company arrangements is no longer confined to the umbrella. HMRC may recover unpaid PAYE and Class 1 NICs from the recruitment agency that supplies the worker to the end client, or from the end client where there is no agency in the chain. The change aligns with the Income Tax reforms in the new Chapter 11 of ITEPA 2003 for umbrella arrangements. (gov.uk)
In scope are arrangements where a worker personally provides services to a client but is employed by a separate business that supplies labour and is not owned by the worker. The rules look to the contractual chain: a link between the umbrella and the client-whether direct or through intermediaries-must exist for joint liability to arise. HMRC’s guidance describes these as the “umbrella company arrangements conditions.” (gov.uk)
Allocation of liability follows the contract chain. If the client contracts directly with the umbrella, the client is jointly and severally liable with the umbrella. Where one or more intermediaries sit between them, the agency that has the contract with the client becomes the relevant party and shares liability. Connected‑party scenarios are addressed using the Income Tax Act 2007 definition of “connected”. (gov.uk)
Cross‑border chains are brought within scope. If a worker is placed with a UK client through a non‑UK agency, the client is the relevant party alongside the umbrella. Where both the agency and the umbrella employer are non‑UK but another party in the chain is UK‑resident, the UK party closest to the client carries liability. (gov.uk)
Anti‑avoidance rules apply where a business operates as a “purported umbrella company”. HMRC sets out three cases: where others would reasonably assume the business employs the worker when it does not; where, absent these rules, the agency legislation would treat the worker as employed; or where the worker has a material interest and it is presented that most receipts will be paid as earnings but they are not. In these scenarios the worker is treated as employed by the purported umbrella and “relevant remuneration” is taxed as earnings, triggering joint and several liability. (gov.uk)
Interaction with existing intermediaries rules is explicit. Where a deemed employment arises under the “purported umbrella company” tests, the IR35 and off‑payroll working provisions (Chapters 7 to 10 of ITEPA) do not apply for those payments, preventing conflicts between regimes. (gov.uk)
Operationally, HMRC expects the agency that supplies the worker to the client to run PAYE or ensure it is run on its behalf, remitting tax and NICs accordingly; where there is no agency, the end client assumes that role. Agencies operating PAYE will withhold tax and NICs before paying onward, and they are responsible for employer NICs. Some businesses may bring payroll in‑house rather than rely on umbrellas. (gov.uk)
HMRC estimates around 700,000 individuals work via umbrella companies. The government expects the reform to reduce non‑compliance and protect workers from surprise tax bills. For business, HMRC projects one‑off familiarisation costs of £9.9m and continuing annual administrative costs of £21.7m across roughly 30,000 agencies and 400 umbrellas. The Exchequer impact is scored positive from 2025–26. (gov.uk)
The policy objective is to place responsibility on the parties that can control entry into supply chains. By aligning umbrella engagements with the agency framework, the government aims to close avoidance routes and level competitive conditions for compliant firms. HMRC’s guidance and policy papers emphasise due diligence over suppliers and clearer accountability for gatekeepers. (gov.uk)
For procurement, HR and finance leaders, the immediate tasks are contractual and procedural: confirm who is the relevant party in each chain from 6 April 2026; decide whether to operate PAYE in‑house or mandate it is operated by the umbrella on the agency’s behalf; hard‑wire audit rights, warranties and indemnities into terms; and document periodic checks on payroll operation, including for overseas links. HMRC has also published guidance describing the operating model for labour supply chains that include umbrellas. (gov.uk)
Timing matters. The joint and several regime applies from 6 April 2026 and to payments made on or after that date under the Finance Bill provisions that underpin the PAYE changes, with matching NICs measures delivered through secondary legislation. Organisations should assume HMRC will pursue recovery from any relevant party if liabilities are not paid in full. (gov.uk)