From 6th April 2026, the way HMRC approaches PAYE risk in umbrella company supply chains is changing, and in a significant way. The headlines focus on what the new Joint and Several Liability (JSL) rules mean in theory but for recruitment agencies, the main question is much simpler. What happens if something goes wrong?
Under the new rules, non-compliance will no longer just affect the umbrella company. It can now affect you and your recruitment agency, right down to your finances, governance, reputation and client relationships. This can jeopardise your ability to operate with confidence, and once things start to look a bit shaky with your clients, it’ll be much harder convincing them to come back.
With HMRC data estimating £500 million lost to tax avoidance schemes in 2022–2023 alone, they will be clamping down on non-compliance within the industry.
What Counts as Non-Compliance?
The regulation changes define non-compliance quite clearly, and this isn’t always dramatic or intentional. This can happen due to:
- Disguised remuneration arrangements
- Mini-umbrella fraud
- Misuse of VAT or Employment Allowance
- Incorrectly calculated PAYE or NICs
- Payroll deductions that are never actually paid to HMRC
- Poor quality payroll oversight
- Systems or reporting errors
- Umbrellas folding before liabilities are settled
Where non-compliance has happened previously, HMRC often chased the umbrella company. In some cases, they even chased the worker. From April 2026, this will no longer be the case.
So your agency might just as easily become the recovery point for unpaid PAYE and NICs, even if you weren’t operating payroll.
Financial Exposure Risk
If you’re not careful, non-compliance can be a financial nightmare.
HMRC will be able to recover PAYE income tax, employee and employer NICs, student loan repayments, penalties, and interest if PAYE or NICs haven’t been paid correctly. And not just from the umbrella company. This could be from the recruitment agency supplying the worker, or the end client.
Come April, HMRC doesn’t even have to split liability proportionately either. It will be able to pursue the full amount from whichever party it believes to be most appropriate, or most able, to pay.
And that can quickly become costly. If you’re placing large contractor populations, small errors can quickly scale into six- or seven-figure exposure. If HMRC reviews historic data, this risk further increases for additional payroll cycles. Looking at 2022–2023, at least 275,000 workers were engaged by umbrella companies that failed to comply with their tax obligations, but the actual number is supposedly higher.
So the new regulations could mean things like unexpected tax bills, stress to your cash flow, emergency financing, and further disruption to any investment plans. The financial exposure hits financial planning, making it harder when tax risk sits outside of your control. But this risk can be mitigated if you take steps to manage it proactively.
Risk of Legal & Governance Scrutiny
Alongside financial exposure comes scrutiny into legal and governance. Should HMRC investigate, they will take a fine-tooth comb to your records, looking beyond whether PAYE was calculated correctly.
This will include whether the agency carried out meaningful due diligence, whether umbrella choices were even assessed, if compliance was monitored (and how often), and whether there are any records to prove any of this. The investigation will also look at if any issues were uncovered and escalated properly.
So assuming you are compliant will not be a defence.
Once HMRC digs up your records and finds non-compliance, your agency could face more formal information requests, leading to more legal support costs and potential enforcement notices. Auditors will even have greater reporting scrutiny.
To avoid all of this hassle, boards and investors will expect to see clear governance frameworks around how umbrella companies are used. Just because something has always been done in an informal arrangement doesn’t mean it will automatically be compliant.
Reputational Risk
Every consumer is aware of the feeling of having bought something from a business that hasn’t been compliant or avoided paying tax. This same feeling extends into business relationships.
Should your agency become associated with unsafe practices, tax recovery notices or HMRC investigations, then your clients and candidates will start to notice, and so will the market.
And under the new regulation changes, while the issue may have stemmed entirely from the umbrella company, the perception will still stick. Your clients and prospects will believe they’ve picked the wrong partner. At that point, the damage is done.
Yes, you can rebuild trust, but with the industry obsessing over the minute details to ensure compliance and avoid hefty tax bills themselves, this will take far longer than repairing your processes.
Clients are now asking smarter questions, checking how umbrellas verify their compliance, and asking for evidence. It’s the agencies who can answer with confidence that will stand out from those who can’t, and get more business as a result.
Worker Risk
You can’t talk about the risks of non-compliance without looking at how it affects the workers. Contractors can be confused by any deductions and inconsistent pay, as well as any future tax exposure. This can quickly lead to a breakdown in trust with both the umbrella company and the recruitment agency.
With a lack of faith in the system, these contractors will leave the umbrella company and potentially look for a different recruiter at the same time. And if your reputation has been smeared against the backdrop of bad practices, your days will be numbered.
It’s far easier, and simpler, to ensure compliance and keep everyone in the chain happy. You won’t be chasing your tail for a new contractor book then.
How to Avoid Non-Compliance
It’s all very well looking at the negatives, but what does compliance actually look like?
The agencies best placed for April 2026 will be those who do the following:
- Choose umbrella partners carefully
- Prioritise independently verified providers (like those who use SafeRec or are FCSA approved)
- Insist on real-time compliance evidence
- Store records that are audit-ready
- Train their staff on supply chain tax risk
- Review PSLs regularly
You don’t have to become a tax expert within the next few months. You just need to prove that you take reasonable steps to ensure compliance, and will continue to do so. Yes, recruitment agencies now sit inside the system of accountability, but with rigorous processes in place, HMRC will be unlikely to chase you for someone else’s mistakes.