Compliance
Compliance Alert: Umbrella Companies and PAYE Liability Changes
Recent legislative updates impose joint and several liability on agencies and end-clients for umbrella companies’ unpaid PAYE and National Insurance contributions — businesses must strengthen their due diligence immediately.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## What’s Changing for Umbrella Companies?
The UK government is introducing legislation so that **employment agencies and end-clients** become **jointly and severally liable** for any PAYE and National Insurance (NIC) that an umbrella company fails to pay.([gov.uk](https://www.gov.uk/government/publications/umbrella-companies-tackling-non-compliance-in-the-umbrella-company-market/umbrella-companies-tackling-non-compliance-in-the-umbrella-company-market?utm_source=openai)) Under this regime, agencies or clients contracting with umbrella companies can be held accountable if the umbrella company is non-compliant.
### Who’s Affected?
- Individuals employed through umbrella companies.
- Recruitment agencies using umbrella companies in their contractor supply chains.
- End-client businesses engaging workers via umbrella companies.
About **700,000 individuals** are estimated to work through umbrella companies in the UK.([gov.uk](https://www.gov.uk/government/publications/umbrella-companies-tackling-non-compliance-in-the-umbrella-company-market/umbrella-companies-tackling-non-compliance-in-the-umbrella-company-market?utm_source=openai))
## Practical Actions for Compliance
- **Due diligence on umbrella companies.** Ensure you verify the umbrella company’s tax status, PAYE/NIC compliance, and financial transparency. Contracts should include robust provisions requiring compliance.
- **Review supply chain contracts.** Make sure agreements with umbrella companies, agencies, and clients clearly allocate liabilities and responsibilities for tax remittance.
- **Payroll system checks.** If an umbrella company fails to deduct or remit PAYE / NIC correctly, the agency or client must now step in. Ensure your payroll records and systems can handle possible liabilities.
- **Training and awareness.** Internal teams—finance, HR, procurement—should be briefed on the new legal obligations.
## Case Study: Agency & End-Client Risk
Suppose **Agency A** hires workers provided by **Umbrella Co.**, who then does not remit PAYE taxes. Under the new rules:
- HMRC may pursue Agency A for unpaid PAYE.
- If Agency A cannot pay or is also non-compliant, the **end-client** business could be liable.
- In practice, an end-client might end up paying back taxes for projects undertaken, inflating costs, adding audit risk.
## Enforcement & Penalties
- Unpaid PAYE / NIC can now be claimed from agencies/end-clients directly.
- HMRC’s capacity to investigate will likely increase, as joint liability provides a broader enforcement target. Budget policy costings estimate material returns in future years from reduced non-compliance.([gov.uk](https://www.gov.uk/government/publications/umbrella-companies-tackling-non-compliance-in-the-umbrella-company-market/umbrella-companies-tackling-non-compliance-in-the-umbrella-company-market?utm_source=openai))
## Best Practices Checklist
| Action | Deadline | Role |
|--------|----------|------|
| Audit suppliers / umbrella companies’ compliance documentation | Immediate | Procurement / Legal teams |
| Amend contracts to include liability clauses and evidence of compliance | Before entering new contracts | Legal / Operations |
| Train payroll/accounting/HR teams on joint liability risks | Within next quarter | Internal training division |
| Monitor overdue liabilities & issue payment remittance reports | Ongoing | Finance / Compliance |
Agencies and end-clients must act fast: the changes elevate risk exposure, but with methodical compliance and monitoring, liability can be minimised.