Umbrella Companies – Important Changes From 6 April 2026
From 6 April 2026, new rules are coming in that will significantly change how umbrella company arrangements are treated.
The rules could make parties higher up the labour supply chain, such as recruitment agencies and, in certain cases, end clients, jointly and severally liable for any unpaid PAYE income tax and Class 1 National Insurance contributions (NICs). These measures are part of the Government’s broader effort to address non-compliance within the umbrella company sector.
At a glance, it may not seem like a major shift. But in reality, these changes could affect agencies, clients, and workers across the entire labour supply chain.
In this article, Ian Orgill, Cowgills Partner, breaks down simply what is changing with Umbrella Companies.
First, what is an umbrella company?
Umbrella companies are typically a business that:
- Employs workers
- Supplies them to agencies or end clients
- Operates PAYE (tax and National Insurance) on their earnings
But under the new rules, it’s not enough for a company to call itself an umbrella. What matters is whether it is actually operating as a genuine employer in practice.
The big change: tax risk is being shared
Under the new legislation, the umbrella company is still treated as the primary employer for PAYE purposes.
However, from 6 April 2026, tax liability does not necessarily stop with the umbrella company, it can move to another party in the supply chain. This is known as joint and several liability.
What does this mean?
If PAYE is not properly accounted for, HMRC can pursue the “relevant party”, which is usually the agency or managed service provider (MSP) closest to the end client. Or, if there is no agency or MSP, the end client itself.
So the risk can move up the chain – it no longer sits solely with the umbrella company.
No umbrella company? The rules can still apply
Importantly, these rules are not limited to situations where there is a separate umbrella business.
HMRC’s guidance makes clear that:
- Any business supplying labour under a contract of employment can fall within scope
- In some cases, an agency may effectively be treated as operating in the position of an umbrella for the purposes of the rules
- This can result in the end client becoming the relevant party and potentially liable
A new focus: “purported” umbrella companies
A key feature of the new rules is the concept of a “purported umbrella companies.”
In simple terms, this means:
- An arrangement that looks like a compliant umbrella model
- But where the underlying reality does not match that appearance
The rules don’t just target non-compliant umbrella companies.
They also apply to any structure presented as operating like an umbrella model, but which isn’t in substance.
When do these rules apply?
The legislation introduces an important test.
The rules can apply if:
- It is reasonable to suppose that others in the supply chain believe the worker is employed and PAYE is being operated; or
- The arrangement is designed to create that impression, even if it isn’t true
HMRC guidance provides three lengthy examples showing how these rules work in practice which we have summarised here:
Example 1. Fake umbrella companies
- A worker is said to be employed by an umbrella company
- The agency and client see contracts and payslips showing PAYE
- But the documents are false
- The worker is actually paid gross, without tax deductions
What this means:
Even if everything looks compliant on paper, the rules can apply if the reality is different. In these cases, liability may shift to the relevant party in the chain.
Example 2. The “umbrella” that’s really self-employment
- A business is presented as an umbrella company
- But it does not employ the worker
- Instead, the worker is engaged on a self-employed basis
What this means:
Calling a business an umbrella does not make it one. Even where self-employment is used, HMRC may apply the purported umbrella rules instead of the usual agency rules if the arrangement is presented as an umbrella model.
Example 3. A worker-owned company dressed up as a payroll vehicle
- A worker provides services through their own company (a PSC)
- It appears that the company is paying them a salary through PAYE
- It is reasonable to assume a substantial proportion of the income will be treated as earnings
- But in reality, that does not happen
What this means:
The rules can apply even to worker-owned companies if they are presented as operating like payroll employers but don’t reflect that in practice.
Why all this matters for agencies and clients
From April 2026, it will no longer be enough to:
- Rely on contracts or labels
- Accept payslips or standard documents at face value
- Assume an arrangement is compliant because it looks like an umbrella model
Instead, businesses will need to consider:
- Is there a genuine employer in the chain?
- Is PAYE actually being operated correctly?
- Do the facts match the impression being given?
If not, the rules may shift tax liability to them as the relevant party.
Final thoughts
HMRC has confirmed that these changes are a compliance measure rather than full regulation of the umbrella market, with separate umbrella company regulation anticipated from 2027.
However, from 6 April 2026, end-user clients will need to recognise that umbrella company compliance has an increased level of risk.
From 6 April 2026, the key question is no longer: “Is this called an umbrella company?”
Instead, it becomes:
“Is there a real employer operating PAYE properly, and do the facts support that?”
If the answer is no, or if the arrangement creates a misleading impression, the purported umbrella company rules are designed to apply, and the tax risk may move up the supply chain.
If you need more advice on umbrella companies, get in touch with Ian via the website. And whilst you’re here why not follow the Cowgills LinkedIn page.
