UK umbrella company reforms introduced Joint and Several Liability (JSL) from 6 April 2026. The changes were included in the Finance Bill 2025–26 (Royal Assent 18 March 2026) and add a new Chapter 11 into Part 2 of ITEPA 2003. They are designed to tackle non-compliance in umbrella company arrangements and help close the tax gap.
What is an umbrella company?
An umbrella company acts as an employer for contractors and freelancers. Often for an operating fee, they employ the temporary worker and have the legal responsibilities of an employer for employment rights and to pay the worker wages through PAYE and account for any tax, national insurance and student loan repayments on those wages to HMRC.
What is changing?
Where an umbrella company sits in a labour supply chain, employment agencies or end clients can become jointly and severally liable for unpaid PAYE.
This includes:
- Income Tax (PAYE)
- National Insurance contributions (employee and employer)
- Student loan deductions
If an umbrella company fails to meet its obligations, HMRC can recover the debt from other parties in the chain.
There is also increased risk of penalties for enabling tax avoidance, which can be up to 100% of fees received where due diligence is not evidenced.
What this means
Businesses hiring contractors will need to carry out significantly stronger due diligence across their supply chains. Liability can now extend beyond the umbrella company to agencies or end clients where PAYE is not correctly operated.
Key actions for businesses
- Review HMRC guidance
- Map your labour supply chain to identify where umbrella companies are used
- Strengthen due diligence on providers (e.g. Companies House checks, VAT validation, HMRC avoidance list checks, and payslip reviews)
- Introduce Approved / Preferred Supplier Lists with pre-vetted umbrella providers and documented onboarding checks
- Look out for red flags, such as offshore arrangements, mismatched payment details, unusually high take-home pay, or complex third-party structures
- Update contracts to include clear compliance obligations, audit rights, and indemnities where appropriate
- Implement ongoing monitoring, not just one-off onboarding checks, including periodic (quarterly/annual) reviews and evidence collection
- Engage with contractors where appropriate, for example reviewing payslips or reconciliation statements to ensure payments align with agreed terms
- Consider simplification, including whether any elements of the supply chain could be brought in-house or restructured to reduce risk
How M+A Partners can help
Our team at M+A Partners can help you reviewing your supply chain and your due diligence processes.
If you would like to discuss how this affects your business, please get in touch with our expert using the details below.
