Umbrella companies’ tax responsibilities reformed

New legislation will be introduced to tackle tax non-compliance among umbrella companies the chancellor announced.

An HMRC policy paper states that from April 2026 agencies that use umbrella companies to employ workers will be responsible for ensuring that the correct income tax and National Insurance contributions are deducted and paid to HMRC.

As a result the agency that supplies the worker to the end client will be legally responsible for operating PAYE on the worker’s pay and will be liable for any shortfall whether they operated their payroll themselves or used the umbrella company to run payroll for them. If there is no agency involved in the supply of the umbrella company worker this responsibility will be placed on the end client itself.

The paper says that the change will make the tax position for workers employed by umbrella...