Tax Liability Changes Coming April 2026 – Is Your Umbrella Supply Chain Ready?

In June 2023, the UK government launched a consultation aimed at tackling non-compliance in the umbrella company market. Since then, the current administration has continued to drive this initiative forward, reinforcing its commitment to addressing unethical payment practices in the temporary workforce sector.

Over the past two years, key stakeholders – including recruitment agencies, the FCSA, and independent contractor experts – have collaborated with HMRC and the Treasury to shape policy proposals. Leading to a pivotal moment, lawmakers plan to publish draft legislation by mid-July.

What We Know So Far

• Although the final framework is still pending, the proposed changes from HMRC (awaiting Treasury approval) suggest a significant shift in tax liability:
• Recruitment agencies and umbrella companies will share tax liability.
• The lead agency will take primary responsibility for any tax shortfall, so if recruitment firms engage with non-compliant umbrella models, they risk becoming accountable for unpaid taxes.
• In supply chains without an agency, the end client will assume this responsibility.

This represents a fundamental change in how organisations manage tax risk across labour supply chains, aiming to reduce non-compliance.

Why This Matters

If you’re working with a non-compliant umbrella company, the risk is now very real. The proposed legislation introduces a strict liability regime, meaning there will be no leniency for ignorance, intent, or fault. This mirrors the approach taken with IR35 off-payroll reforms and the 2014 false self-employment rules in the construction sector.

What Should Agencies Do?

If you’re already working with compliant umbrella companies, your day-to-day operations may not need to change. However, it’s strongly recommended that you:

• Audit your supply chain: Identify all parties involved, and examine how your business engages and pays workers.
• Review contracts: Determine whether your business employs workers or engages them as self-employed, and clarify the agreed terms.
• Examine payslips and reconciliation statements: Look for unexplained deductions or signs of underpayment.
• Be cautious of misleading claims: HMRC does not endorse umbrella companies. Claims of being “HMRC approved” should raise red flags.
• Verify accreditations: Cross-check any stated accreditations with the issuing body’s website.
• Check Companies House: Is the umbrella company newly incorporated? Do their financials suggest instability?
• Watch for red flags: Promises of higher take-home pay or untaxed bonuses may indicate tax avoidance schemes.

Looking Ahead

As we await the final draft legislation, the direction is clear: agencies and clients will no longer be able to distance themselves from umbrella tax compliance. Managing risk will require real-time due diligence and ongoing auditing, and QUBA commits to helping their agencies navigate this challenge.