The 2026 umbrella reform regulation changes are coming and our handy due diligence checklist will help you prepare.
The 2026 umbrella reform regulation changes are coming and HMRC will have the power to recover unpaid PAYE and NICs from recruitment agencies and end clients. Umbrella companies are no longer the only ones in the firing line.
As explained in the Joint and Several Liability (JSL) rules, monies can be taken from anyone HMRC deems to be most suitable to pay. And with an estimated shortfall of £1 billion paid in tax avoiding schemes, the stakes just got a lot higher. So if an umbrella gets payroll wrong or doesn’t pay HMRC correctly, your agency could still end up footing the bill.
This means due diligence on umbrella partners is now a number one priority. Because when HMRC or your clients start to ask why you chose a particular umbrella, you need to provide evidence.
And what better way to review your PSL or how you onboard a new umbrella than by working your way through a due diligence checklist?
Umbrella Due Diligence Audit Checklist
Use this checklist to assess existing umbrellas or as part of your onboarding process. Ideally, repeat reviews regularly and store your findings somewhere central. This means it’s ready to access when it comes to any investigation.
Company Status & Governance
Confirm the umbrella exists, is stable, and is genuinely employing workers.
- UK-registered business
- Directors and owners clearly identifiable
- No pattern of dissolution/restarts
- Transparent company information available
- Operates as employer of record
Payroll & Tax Operation
Check that PAYE exists, is compliant and visible.
- PAYE and NICs processed via HMRC RTI
- Payslips are clear and compliant
- Holiday pay shown transparently
- No unusually high take home pay claims
- Expenses handled correctly and realistically
Independent Verification
Look for evidence of their work.
- Recognised industry accreditation
- Independent, ongoing compliance verification
- Real time or frequent audit activity
- Reports accessible to agencies and end clients
Worker Experience
How are workers treated?
- Clear contracts and pay illustrations
- Fair employment terms
- Accessible support for queries and complaints
- Full statutory employment rights provided
Your Agency’s Governance & Record Keeping
Make sure your own processes hold up against scrutiny.
- Documented onboarding due diligence
- Reviews scheduled every quarter, annually, etc.
- Issues escalated internally when necessary
- Evidence stored centrally for audit purposes
- Clear rationale why umbrella remains on PSL
Red Flags
If you spot any of these, investigate immediately.
- They promote higher net pay than standard PAYE
- Loans, bonuses, offshore or trust arrangements appear
- Deductions are unclear or inconsistent
- Information is slow, defensive or incomplete
- You wouldn’t feel comfortable explaining their model to HMRC
Audit Your Due Diligence
From April, HMRC can recover any unpaid PAYE income tax, NICs, interest and penalties from your agency in full. Liability will no longer need to be split proportionately either and they’ll no longer have to go after solely the umbrella.
It’s in your best interest to check your agency’s due diligence. This checklist is a little nudge and reminder to help you manage the financial risks involved.
The strong approach is to get ahead of the regulation changes in April 2026. Recruitment agencies should start to have a clearly defined umbrella PSL that holds its own under scrutiny.
The good news is, if your process is watertight, the chances of being picked up by HMRC will be negligible. You can showcase this with independent evidence of compliant payroll, such as SafeRec certification and being FCSA certified. As long as it’s not just a sticker, you’re in safe hands.
Remember, assumed compliance puts you in danger. You’ll protect your reputation and business if you can show and evidence how you review and monitor umbrellas properly.