Entity Setup
Umbrella Company Reforms from April 2026: What Agencies, Clients and Workers Must Know
From 6 April 2026, agencies and end clients become legally liable alongside umbrella companies for PAYE taxes—this article breaks down the joint & several liability rules, real-world examples, and how to stay compliant.
By NomadicTax Research Team • 5-8 min read • August 11, 2026
## Background: Why these reforms?
Umbrella companies have long been used in labour supply chains but also abused in cases of tax fraud and non-compliance. To protect workers and ensure tax fairness, HMRC introduced new rules in **April 2026** to assign responsibility not just to the umbrella company, but also to the agency or end client, where applicable. ([gov.uk](https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm2405?utm_source=openai))
## What is joint and several liability?
Under the new **Chapter 11, Part 2 of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)**, when an umbrella company forms part of your labour supply chain:
- If the umbrella company fails to pay PAYE, HMRC can recover the unpaid tax from **any relevant party**—including the recruitment agency or the end client. ([gov.uk](https://www.gov.uk/guidance/paye-rules-for-labour-supply-chains-that-include-umbrella-companies-from-6-april-2026?utm_source=openai))
- Liability kicks in **from payments made on or after 6 April 2026**. ([gov.uk](https://www.gov.uk/guidance/paye-rules-for-labour-supply-chains-that-include-umbrella-companies-from-6-april-2026?utm_source=openai))
## Who is affected?
- **Umbrella companies** themselves remain responsible for operating PAYE correctly for their employees.
- **Agencies** with direct contracts to supply workers to clients are now accountable.
- **End clients** are responsible if there’s no recruitment agency in the chain—they contract directly. ([gov.uk](https://www.gov.uk/guidance/paye-rules-for-labour-supply-chains-that-include-umbrella-companies-from-6-april-2026?utm_source=openai))
- **Workers** should check their payslips carefully for correct deductions. Easy prompt: get itemised pay statement, compare employer, NI, tax lines.
## What this means in practice
- If an umbrella company doesn’t remit PAYE, HMRC can ask the agency or the client (if there's no agency) for the payment.
- Both agencies and clients must **carry out due diligence** before engaging with umbrella companies—review financial compliance, ensure payroll systems are robust.
- Contracts may need updating to mirror these obligations. Clauses transferring liability or indemnifying could help, **but ability to enforce depends on legal terms**.
## Examples
**Scenario 1:** Agency A supplies workers through Umbrella Company U to Client C. U fails to pay £30,000 of PAYE. HMRC can approach both A and C for that amount, as A holds the contract with C.
**Scenario 2:** Worker contracts directly with U (no agency), but Client C pays U. If U fails, then **Client C** becomes liable.
## Tips to manage risk
- **Audit umbrella partners**: check their PAYE history, company accounts, online reviews.
- **Include safeguards in contracts**, such as requirement of proof of PAYE submissions.
- **Ensure payroll compliance** throughout the supply chain.
- **Workers should monitor pay statements**, keep records of earnings, deductions.
## Where IR35 fits in
These umbrella reforms are separate from IR35, which deals with **off-payroll working rules** for intermediaries like PSCs. If you are caught by IR35, those rules still apply, but the umbrella reforms concern operating PAYE obligations across labour supply chains.
## Summary
- **Effective 6 April 2026**, agencies and clients may be liable for PAYE in the supply chain.
- Compliance requires due diligence, contract reviews, accurate record keeping.
- Aim: more fairness, less abuse, better protection for temporary workers.