For years, the tax risk in an umbrella arrangement sat with the umbrella company. If it under-declared PAYE or disappeared owing HMRC money, that was largely its problem. From 6 April 2026, that changed. New joint and several liability rules mean HMRC can recover unpaid PAYE income tax and Class 1 National Insurance from other businesses in the labour supply chain, and in most chains that means the recruitment agency.
The short version
- The rules apply to payments made to umbrella workers on or after 6 April 2026.
- If an umbrella company fails to account for PAYE and NICs, HMRC can pursue the agency that contracts with the end client for the full amount.
- Where the end client contracts directly with the umbrella company, with no agency in between, the client is the one exposed.
- There is no statutory reasonable care defence. Due diligence reduces the chance of a problem, but it does not remove the liability if one occurs.
- The definition of an umbrella company is broad, so arrangements that do not call themselves umbrellas can still be caught.
What joint and several liability means in practice
Joint and several liability lets HMRC choose who to collect from. If an umbrella company in your chain owes £50,000 of PAYE and NICs, HMRC can pursue the umbrella, or your agency, for the whole £50,000. It does not matter that you paid the umbrella in full and on time, or that the umbrella gave you assurances about its compliance. Documents later shown to be false offer no protection either.
The amount at stake is not your margin on the placement. It is the tax on the worker's entire pay. On a contract book with several umbrella workers, an umbrella failure could produce a bill many times larger than the profit you made on those placements.
Who is liable
The legislation sets out a "relevant party" who carries the liability. In the most common chain, client to agency to umbrella to worker, that is the agency holding the contract with the end client. Where there are several agencies, it is generally the one closest to the client. Where the client contracts directly with the umbrella company, the client is liable. Special rules apply where an agency is connected to the umbrella company, or where agencies in the chain are based outside the UK, so complex chains need checking individually.
What to check now
- Map your chains. List every umbrella company paying workers you supply, how many workers each one pays, and the weekly value going through each. Most agencies find the list is longer than they thought.
- Gather evidence, not promises. Ask each umbrella for evidence that PAYE is being operated and paid: independent accreditation, sample payslips that tie back to the rates you pay, and confirmation that RTI submissions are being made. Repeat it, rather than checking once at onboarding.
- Look for the warning signs. A worker's take-home pay that looks too good for the rate you pay is the classic sign of a scheme that is not paying the right tax. So is an umbrella that cannot explain its own deductions clearly.
- Review your contracts. Indemnities, audit rights and information rights do not stop HMRC coming to you, but they give you a route to recover the money and the right to see what is going on. Ask a lawyer to review the wording.
- Narrow your supplier list. Fewer, well checked umbrella companies are easier to monitor than a long tail of whoever the worker chose.
- Run the numbers on direct PAYE. Some agencies are moving temps onto their own payroll instead. That removes the umbrella risk but brings the employer costs onto your books, and the worker is likely to become a limb (b) worker covered by the Agency Workers Regulations. Our temp margin calculator shows the margin under each model.
The accounting side
Most agencies will never receive a joint and several liability bill. But if you become aware of a specific exposure, for example an umbrella you used has gone into liquidation owing HMRC money, it may need to be reflected or disclosed in your accounts, and it should certainly be in your cash flow forecast. Keep a record of the checks you carried out and when. If HMRC does ask questions, a clear paper trail of who you paid, what you paid and what evidence you held is the best position to be in.
What we do for clients. We reconcile every umbrella and limited company invoice against your timesheets and sales invoices, keep the supplier records in one place, and flag supplier changes in your monthly figures. Contract wording and status decisions remain matters for you and your legal advisers.
Wider changes still to come
Joint and several liability is part of a broader tightening of the temporary labour market. The Employment Rights Act 2025 and the new Fair Work Agency are also changing how agency work is enforced, and further regulation of umbrella companies is expected. If umbrella workers are a meaningful part of your contract book, it is worth reviewing your model now rather than after a problem surfaces.
This guide is general information based on the rules as we understand them in October 2026. It is not legal or tax advice on your circumstances. Speak to us, or to a specialist employment tax adviser, before acting on it.