Umbrella Companies

Please note this section is currently being updated to include recent developments.

Policy

The previous Government launched a consultation in 2023 on non-compliance in the umbrella company market (i.e. a business which employs a worker with a view to that worker being supplied to work for, and be under the control of, an end-client). The new Government has issued a response and has decided to take steps to reform the umbrella company market. In addition, on 21 July 2025 HMRC published a policy paper entitled ‘Umbrella Companies: tackling non-compliance in the umbrella company market’. This update includes a draft of the Finance Bill 2026 legislation which will be used to implement the changes set out below.

These developments have proposed the following:

• Introduced an amendment to the Employment Rights Bill to expand the  definition of ‘employment businesses’ to include umbrella companies.
  • The Employment Rights Bill allows for the regulation of umbrella companies, and for state enforcement by the Employment Agency Standards Inspectorate (and subsequently, the Fair Work Agency) by expanding the definition of employment businesses to include such umbrella companies.
  • Existing laws that regulate the conduct of employment agencies and businesses, include: (i) providing a ‘key information document’ to agency workers; (ii) maintaining accurate records of compliance with regulations; (iii) protections from detriment for the agency worker if they terminate their agreement with the employment business or work elsewhere; and (iv) ensuring transparency regarding pay and deductions.
  • The debate regarding the proposed amendments to the Employment Rights Bill on 11 March 2025 and the subsequent Fact Sheet published on 27 March 2025 suggests that the Government will consult on whether amendments to those regulatory obligations should be made to ensure they are “appropriate for application to umbrella companies and address the main harms identified in this sector (for example, lack of pay transparency and difficulty in enforcing employment rights and obligations).” No indication was given as to when this consultation might happen or how obligations may be varied.

• Promised to legislate separately (following consultation, which is anticipated this year) to transfer responsibility to account for PAYE and National Insurance Contributions from the umbrella company that employs the worker, to either:
  • the recruitment agency that supplies the worker to the end client; or
  • where there is no agency in a labour supply chain, to the end client.

This draft language of the Finance Bill 2026 confirms that the Government is proposing to make the UK agency that supplies workers to an end-client jointly and severally responsible for the PAYE liabilities of the umbrella company. If there is no UK agency in the supply chain (or the UK agency is connected to the umbrella company), joint and several liability will attach to the end-client provided it is resident in the UK. If there is more than one UK agency in the supply chain, joint and several liability will attach to the UK agency that has directly contracted with the end-client.

The Government has indicated this will not prevent umbrella companies being used to operate payroll on behalf of the recruitment agency or end-client but means that legal responsibility for any unpaid amounts will rest with the recruitment agency or end-client, as applicable. The Government intends for this change to take effect from April 2026 (see the Pay and Tax section for more information).

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Timing and developments

Included in the Employment Rights Bill following amendments on 5 March 2025.

The Government has promised to consult on the regulation of Umbrella Companies in Autumn 2025 and has said that the measure will take effect in 2027, although a specific date is not provided.  

The Government has said that the change to the tax position will be brought into force from April 2026.