Umbrella company rules 2026: who is liable for unpaid PAYE

What changed on 6 April 2026

Umbrella companies are employment intermediaries that employ, or purport to employ, workers on behalf of agencies and end clients. A new Chapter 11 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003, sections 61Y to 61Z1, took effect from 6 April 2026 to tackle tax non-compliance, including avoidance and fraud, in the umbrella company market. HMRC ESM2405

At Budget 2025 the government said it would legislate in the 2025 to 2026 Finance Bill to make agencies responsible for PAYE on payments to workers supplied through umbrella companies. Budget 2025 OOTLAR Finance Act 2026 received Royal Assent on 18 March 2026. ICAEW, Finance Act 2026 HMRC's guidance applies to money paid to workers on or after 6 April 2026. GOV.UK, umbrella PAYE rules

HMRC's policy paper says the people likely to be affected are recruitment agencies that use umbrella companies, end clients that use umbrella workers where there is no agency in the chain, and umbrella companies themselves. HMRC policy paper, 26 November 2025

Who is liable, and for what

• The agency. The agency that has the contract with the end client to supply the workers. GOV.UK, umbrella PAYE rules
• The end client, if there is no agency. HMRC can recover underpaid PAYE from the end client where no agency is involved. GOV.UK, umbrella PAYE rules
• What can be recovered. PAYE Income Tax, and employee and employer National Insurance contributions. GOV.UK, umbrella PAYE rules
• Joint and several. HMRC: "It does not matter which party pays or how much each party pays as long as the amount is paid in full." HMRC ESM2420
• Chains with a non-UK party. HMRC's guidance points to ESM2420 where any part of the chain is based outside the UK. GOV.UK, umbrella PAYE rules KPMG's reading of the legislation is that an end client is liable where it contracts directly with a non-UK agency, an agency connected with the umbrella company, or the umbrella company itself. KPMG commentary, December 2025
• No defence. KPMG notes there is no right of appeal or defence for the relevant party, for example reasonable excuse or having been given fraudulent information. KPMG commentary, December 2025
• Wider than umbrellas. KPMG says the definition of umbrella company could bring employers of record and other organisations that second their employees to clients into scope. KPMG commentary, December 2025 See our employer of record guide.

What agencies must check

GOV.UK sets out the checks an employment business should make on the umbrella companies it works with: GOV.UK, agency responsibilities with umbrellas

• VAT registration, and that the details match.
• Companies House registration details.
• Payslips obtained directly from workers, to confirm the umbrella company is acting as the employer and operating PAYE.
• Unexplained deductions, or pay below the National Minimum Wage.
• Employer's liability insurance, and a GLAA licence where one is needed.

The same guidance says agencies must give workers a key information document before providing work-finding services, submit quarterly employment intermediaries returns where they do not operate PAYE for workers they place, make sure right to work checks are done, and operate PAYE themselves where an overseas umbrella with no UK presence employs the worker, unless another party does so. It recommends short, transparent supply chains. GOV.UK, agency responsibilities with umbrellas

The key information document must include a representative example pay statement showing the deductions that affect take-home pay. GOV.UK, key information document

What end clients should check

These are the questions we would ask as an end client, based on the rules above. Your accountant or solicitor should confirm what applies to you.

1. Is there a UK agency between you and every umbrella company paying people who work for you? If not, you may be the liable party. GOV.UK, umbrella PAYE rules
2. Do you contract directly with any umbrella company, a non-UK agency, or an agency connected to an umbrella? KPMG commentary, December 2025
3. How does your agency check its umbrella companies, and can it show you those checks? GOV.UK, agency responsibilities with umbrellas
4. Do any employer of record or secondment arrangements look like an umbrella under the new definition? KPMG commentary, December 2025
5. Does your agency contract say who bears the cost if HMRC recovers unpaid PAYE? Ask your solicitor to review it.

What contractors should look for

If you are paid through an umbrella company, GOV.UK suggests you: GOV.UK, working through an umbrella company

• Make sure you can see your payslips, and review each one.
• Check that the National Insurance and pension contributions taken from your gross pay are employee contributions, not employer ones.
• Understand what comes out of the assignment rate before your gross pay is worked out: the umbrella's margin, employer National Insurance, employer pension contributions, holiday pay and, where it applies, the Apprenticeship Levy.
• Check how your holiday pay is paid.
• Be cautious if you are offered a separate payment you are told is not taxable, such as a loan, or are paid more than your payslip shows.

HMRC's Work out pay from an umbrella company tool estimates your gross and take-home pay for a single role, and shows the deductions applied. GOV.UK, umbrella pay tool Your agency should give you a key information document with a representative example pay statement. GOV.UK, key information document

If you contract through Hurren & Hope, see how onboarding works on our contractors page.

What comes next: umbrella regulation in 2027

• The Employment Rights Act 2025 amends the Employment Agencies Act 1973 so that the definition of employment business covers umbrella companies. Once in force, the Fair Work Agency will regulate them. The factsheet says regulation under the Conduct Regulations is expected to take effect in 2027. GOV.UK umbrella companies factsheet
• The Fair Work Agency was set up on 7 April 2026, and the government timeline lists regulation of umbrella companies for 2027, month not given. GOV.UK Employment Rights Act timeline
• The consultation on modernising the agency work framework ran from 6 February to 1 May 2026. As at 29 September 2026 the page says the government is analysing feedback. GOV.UK agency work consultation

How we handle this for our clients

Where Hurren & Hope is the agency contracting with you, we are the relevant party for umbrella PAYE in that chain. Contracts, right to work checks and the April 2026 umbrella rules are handled in house by our UK contract desk.

Sources

Every source below was fetched and read on 29 September 2026. We use primary sources first, and name any commentary. How we research these pages.

1. HMRC ESM2405: umbrella company joint and several liability, introductionChapter 11 Part 2 ITEPA 2003, sections 61Y to 61Z1, in effect from 6 April 2026. Checked 29 September 2026.
2. HM Treasury and HMRC: Budget 2025 overview of tax legislation and ratesThe £5,000 secondary threshold held from April 2028 until April 2031, and the plan to legislate the umbrella PAYE change in the 2025 to 2026 Finance Bill. Checked 29 September 2026.
3. ICAEW: Finance Act 2026Finance Act 2026 Royal Assent on 18 March 2026. Checked 29 September 2026.
4. GOV.UK: PAYE rules for labour supply chains that include umbrella companies from 6 April 2026Who is liable (the agency contracting with the end client, or the end client), what HMRC can recover, the 6 April 2026 start. Checked 29 September 2026.
5. HMRC policy paper: Umbrella company market, changes to Income Tax rules to tackle non-compliance (26 November 2025)Who is likely to be affected by the umbrella PAYE change. Checked 29 September 2026.
6. HMRC ESM2420: joint and several liabilityThe joint and several liability wording, "it does not matter which party pays". Checked 29 September 2026.
7. KPMG UK: Finance Bill, umbrellas unfurled (11 December 2025)When an end client is a relevant party, no reasonable excuse defence, and employers of record possibly in scope. Checked 29 September 2026.
8. GOV.UK: Responsibilities for employment businesses working with umbrella companiesDue diligence checks, key information documents, quarterly returns, and PAYE where an overseas employer has no UK presence. Checked 29 September 2026.
9. GOV.UK: Key information document guidance for agency workers paid through umbrella companiesThe key information document and its representative example pay statement. Checked 29 September 2026.
10. GOV.UK: Working through an umbrella companyWhat a contractor should check on payslips and assignment rate deductions, and warning signs. Checked 29 September 2026.
11. GOV.UK: Work out pay from an umbrella companyHMRC tool that estimates gross and take-home pay from an umbrella company. Checked 29 September 2026.
12. GOV.UK factsheet: Umbrella companies (Employment Rights Act 2025)Umbrella companies brought within the Employment Agencies Act 1973, regulated by the Fair Work Agency, expected in 2027. Checked 29 September 2026.
13. Department for Business and Trade: Plan to Make Work Pay and Employment Rights Act timeline update (updated 25 September 2026)Commencement dates: tribunal time limit, harassment duties, unfair dismissal, Fair Work Agency, umbrella regulation, guaranteed hours. Checked 29 September 2026.
14. GOV.UK consultation: Make Work Pay, modernising the agency work regulatory frameworkConsultation dates (6 February to 1 May 2026) and status (analysing feedback). Checked 29 September 2026.