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. Now, we’re approaching a pivotal moment: draft legislation is expected to be published 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:
• Tax liability will be shared between recruitment agencies and umbrella companies.
• Primary responsibility for any tax shortfall will rest with the lead agency—meaning recruitment firms could be held accountable for unpaid taxes if they engage with non-compliant umbrella models.
• In supply chains without an agency, the end client will assume this responsibility.

This represents a fundamental change in how tax risk is managed across labour supply chains, with the goal of reducing 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 understand how workers are engaged and paid.
• Review contracts: Are workers employed or self-employed? What terms have been agreed?
• 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. Real-time due diligence and ongoing auditing will become essential to managing risk and QUBA are committed to helping their agencies navigate this risk.