From 6th April 2026, the way HMRC approaches PAYE risk in umbrella company supply chains will change in a material way – and for recruitment agencies, the implications go well beyond just payroll mechanics.
Until now, non-compliance with PAYE and National Insurance obligations sat almost entirely with the umbrella company. If payroll was run incorrectly, HMRC’s primary recovery route was to pursue the umbrella itself, and in some cases the individual worker. From April, that will no longer be the case.
Under the new rules, agencies and, in some instances, end clients can be held financially responsible for unpaid tax – even where they never ran payroll themselves. This is now a fundamental shift in accountability.
So, what’s coming, why is it happening, and what does it mean in practice?
1. Joint and Several Liability
The headline reform under the April 2026 changes is the introduction of Joint and Several Liability (JSL).
Put simply, where an umbrella company fails to operate PAYE and NICs correctly, HMRC can pursue any relevant party in the labour supply chain for recovery – not just the umbrella itself.
In recruitment supply chains, this typically means:
- The umbrella company, as the legal employer
- The recruitment agency that contracts with the end client
- In scenarios without an agency, the end client may be the party pursued
Under joint and several liability, HMRC can choose to recover the full amount of unpaid payroll taxes from whichever party it determines is most appropriate or most able to pay. There’s no requirement for proportional allocation between parties.
This isn’t about shining a light on the umbrella’s compliance. It places accountability (and potential financial risk) on the agency that selected and placed that umbrella provider into the supply chain.
2. Expanded HMRC Recovery Powers
The second piece of the reform puzzle is the scope of liabilities HMRC can recover.
Where non-compliance is identified, HMRC’s recovery powers extend to income tax all the way through to interest and penalties.
This collection of liabilities is significant because it goes beyond just a technical miscalculation. A seemingly small payroll error, or a failure by an umbrella to remit deductions to HMRC, can escalate quickly, especially when agencies place large numbers of contractors.
HMRC has also been clear that the policy intention is not simply to chase small errors but to crack down on systemic non-compliance that harms workers and the Exchequer alike. Part of the rationale for the reforms is the scale of tax avoidance and non-compliance detected historically, with HMRC estimates showing hundreds of millions lost to avoidance schemes.
3. What Good Governance Looks Like Under the New Rules
If the first two elements define what the rules are, the third (governance) defines what agencies need to do about them.
Under the new regime, HMRC won’t simply ask “did the umbrella get it right?”. It will look at whether your agency took meaningful steps to prevent compliance failure in the first place.
That means oversight of umbrella partners is now part of your governance responsibility – not a “nice to have”.
HMRC and clients alike will expect to see documented due diligence on umbrella providers, regular compliance evidence showing PAYE and NICs are being operated correctly, and clear records that would hold up in an audit or investigation, as well as a rationale for why particular providers remain on your preferred supplier list (PSL).
Umbrella selection has moved away from simply being a commercial choice. It’s all about controlling compliance.
Assuming compliance without evidence, or relying solely on contractual indemnities, will not be enough. What matters is being able to prove you took reasonable, ongoing steps to manage supply chain tax risk.
What This Means for Your Recruitment Agency
This new operational environment highlights three key elements for recruitment agencies.
- You sit inside the compliance chain
- HMRC can now come after you
- Evidence is your best friend
Naturally, recruitment agencies will start to be a bit more sceptical about umbrellas, but they shouldn’t avoid them altogether. All that needs to happen now is for umbrella risk to be taken as a core business risk.
These changes shouldn’t come as a shock as they’ve been on the cards for a while now, so agencies and umbrellas should already be able to show their compliance. Any agencies who have started prepping will be much better placed to maintain client confidence.
Want the Full Breakdown?
For a deep dive into the changes coming and how they affect different stakeholders, take a read of our white paper. This documents how you can stay protected and provides a practical step-by-step preparation checklist.
Understanding the detail now means being in control before the regulation changes take effect.