Cleaning up the umbrella industry: CEO’s thoughts

It’s not very often umbrella companies get an actual name check in the Budget speech, but there it was, with Rachel Reeves pledging to clamp down on umbrella companies that exploit workers. 

The detail of what this actually looks like came later in  the updated policy paper “Tackling non compliance in the umbrella company market” and I think my co-director and COO of Liquid Friday, Joe Taffurelli, captured it best: “Finally, umbrella compliance, albeit via the back door”

The legislation states that:

“Where an agency chooses to outsource operation of payroll to the umbrella company that employs the worker they are supplying, PAYE will be operated by the umbrella company on behalf of the agency and the agency will be liable for any shortfall.”

The liability transfer mechanism in this regulation isn’t new; it’s already used for tax revenue recovery in the Onshore Intermediaries Legislation. Under those regs, compliant agencies doing things correctly had nothing to worry about— the same applies now.

Compliant agencies and umbrella companies operating in a manner that complies with UK employment and tax law will see no operational, risk or practical changes with the inception of these new regulations (effective from 2026) as all processes would remain the same. 

However, for non-compliant umbrella companies, or agencies that endorse, or turn a blind eye to non-compliant practices, the future looks very different. Agencies using non-compliant umbrellas will now be held liable for unpaid tax liabilities. 

So, what are the types of non-compliance that could land agencies in hot water? We’re talking about:

• Disguised remuneration schemes (like contractor loan schemes)
• Umbrella companies mismanaging expenses when workers are under supervision, direction, or control
• Mini umbrella schemes (these exploit the Employment Allowance, so the decision in the Budget to increase the EA makes them even more of threat)
• Any engagement model that doesn’t apply full PAYE, NI, and NIERS on total assignment pay to the worker
• Cases where agencies request indemnities from workers for tax liabilities

So, is this set in stone? Yes it is!

HMRC have said there will be no further consultation, therefore these changes are happening, with effect from April 2026.

My biggest takeaway is that this regulation is a win for compliant agencies and umbrella companies and will level the playing field. Removing the unfair commercial advantage gained by non-compliant entities in the supply chain creates more opportunity for those playing by the rules and will help eradicate those exploiting the system for unfair personal gain. 

For too long, rogue players have been able to take advantage of compliant umbrella companies and agencies in the market. We are really hopeful (and optimistic) that this regulation finally delivers the clean up the industry needs.