A guide to what impact the new Umbrella Legislation has on the Recruitment Sector

by Steve McDermott | Jul 23, 2025 | All Articles, Blog, HMRC, Legislation, News, Recruitment Businesses, UK Employers

A guide to what impact the new Umbrella Legislation has on the Recruitment Sector

Changes to the Umbrella Legislation – What has brought about the changes, and what will they mean?

New Red Planet Ltd, an FCSA Accredited payroll company has prepared a brief overview of the impending new Umbrella Legislation changes and highlighted the possible impacts and benefits this has on the recruitment sector.

On July 21, 2025, the Government released the long-anticipated draft legislation addressing the shift in PAYE responsibilities for recruitment agencies supplying workers through umbrella companies.

What has brought about the changes?

This initiative aims to combat tax evasion within the umbrella sector.

These modifications stem from prior evidence gathering effort in 2021, which led to a consultation held in 2023 focusing on the regulation of umbrella companies for employment rights and strategies to address tax non-compliance in the sector.

So, what implications does this change hold?

Are you impacted by it?

What steps should you take now?

Additionally, how much time do you have to familiarise yourself with these updates?

What recruiters need to know.

The proposed Income Tax legislation issued by the government aims to hold recruitment agencies, in addition to the umbrella company, responsible for Pay As You Earn (PAYE) obligations, regarding payments made to workers supplied through umbrella companies.

In cases where there is no recruitment agency involved, the ultimate client assumes this responsibility.

This legislation establishes a framework of joint and several liability, enabling HMRC to seek recovery of payroll taxes that an umbrella company fails to remit, targeting either the agency or the end client.

This initiative is designed to diminish instances of tax non-compliance, potentially generating an additional £500 million by the fiscal year 2029-30, while fostering fairness among compliant businesses and safeguarding workers from unexpected tax liabilities.

Furthermore, the draft legislation introduces joint and several liability in cases involving so-called umbrella companies to address evasion of this responsibility.

These scenarios arise when an individual is providing services to an end-user client but does not seem to be formally employed by the umbrella company.

Employment agencies have the authority to determine which companies are permitted to join their labour supply chains, giving them the capability to block unauthorised entities from accessing the market.

The government is of the view that holding those in control of labour supply chains legally accountable for the accurate reporting of PAYE will enhance compliance within the industry.

Plus, the regulations specify that when an agency is involved, it will be regarded as the employer in cases concerning the failure to pay taxes, and HMRC will seek security from the agency for any unpaid PAYE obligations.

Squiggle of year 2026 to represent the changes in Umbrella Legislation

A draft of the legislation has been issued and will undergo a technical consultation that will continue until September 15, 2025, with the law set to come into force on April 6, 2026.

The aim of this consultation is not to decide if the provisions should be enacted, but to ascertain if the draft meets its declared goals. Additionally, this consultation can uncover any potential unintended effects.

In a different context, the Employment Rights Bill is set to introduce regulations that will subject umbrella companies to oversight by the Employment Agencies Standards inspectorate, followed by the Fair Work Agency in 2027.

The government has introduced a legislative package that was largely anticipated, aimed at establishing Joint Several Liability (JSL) for clients utilising umbrella companies.

In a recent note from the Finance Bill 2025-26 released yesterday, HMT states that recruitment agencies will bear the responsibility for PAYE concerning the wages of employees associated with umbrella companies.

As agencies assume the tax liability going forward, those opting to maintain partnerships with umbrella companies must be persuasive in encouraging these companies to facilitate real-time monitoring and verification of actual employee payslips and, ideally, provide proof that payments have been made to HMRC.

What are the consequences and what is the meaning of joint and several liability?

Joint and several liability refers to the principle that every participant in the supply chain shares equal responsibility for any underpayment, with any one of them being accountable for the total amount owed. This implies that HMRC is permitted to seek the full outstanding sum from any party, no matter what their involvement was in causing the underpayment.

In theory, this suggests that any individual party could be held accountable for the entire PAYE underpayment associated with workers supplied by umbrella companies. However, HMRC’s outlined policy and objectives indicate that initially, either the agency or the client will bear the responsibility for any tax deficiencies. For master vendors, the key takeaway is that the entity holding the contract with the client will carry the joint and several liability in situations involving umbrella companies within the supply chain.

Following the enactment of the new Finance Bill, it will be essential to verify that your processes align with compliance standards, as failing to do so could result in liability for any outstanding Pay As You Earn (PAYE) dues.

Additionally, there are indications that regulations concerning National Insurance contributions may also be introduced. If you are currently utilising the services of an umbrella company for your workforce, this is an opportune moment to initiate conversations with these firms regarding their procedures concerning PAYE.

All businesses dependent on umbrella arrangements should take this interim period to examine their supply chains, communicate with umbrella providers, and gain clarity on how they handle payroll compliance. It is recommended to initiate discussions early and provide sufficient time to decide upon and enact relevant action plans.

At New Red Planet, we are proactively collaborating with FCSA and our recruitment and legal partners to prepare for forthcoming changes. This will ensure we are equipped to offer clients practical advice and resources aimed at minimising risk and ensuring compliance.

Although the draft bill is not yet law, it is prudent to dedicate this time to gain a comprehensive understanding of PAYE regulations and to recognise how these rules may vary among different workforces.

What the REC says

Continue to carry out due diligence on umbrella companies you use. REC members can access the REC’s model due diligence checklists here
Find out how your umbrella company partners are responding to the changes to inform your next steps

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PEO – Simplifying the Process

by Steve McDermott | Nov 21, 2023 | All Articles, Blog, Freelance Professionals, HMRC, Legislation, News, Recruitment Businesses, UK Employers

PEO – Simplifying the Process

In a world of changing payments and regulations, the professional employer organisation is here to help.

The word ‘nuanced’ could have been created for the contracting and freelance workforce in the UK, especially when it comes to payment with differing rules, exemptions and requirements to contend with.

And a nuance is one short hop from a grey area, which in the temporary work market, can easily turn into a lack of transparency.

Turning to an intermediary to take care of matters, such as an umbrella company, has hence been a natural step for contractors and the agencies and employers who manage and pay them.

But, in a sector that continues to be unregulated, the bad as well as the good stories are well documented.

Professional Employment Organisation (PEO)

What is a PEO?

Enter the professional employer organisation (PEO), which aims to bring more transparency for all parties involved.

Like an umbrella, a PEO is an employment intermediary, which provides recruitment agencies, contractors and small to medium-sized businesses with an outsourced HR and payroll solution.

The PEO, which first became popular in the US, takes on responsibility for all the typical employer services like tax, National Insurance Contributions (NICs), compliance and all other legislative and administrative requirements. This includes contracts of employment and in some cases, if operating a worker model, contracts for service.

Steve McDermott, business development manager at New Red Planet:

“We understand the growing demand in the temporary labour market for a range of payroll options, and that is why we have taken the decision to work with the FCSA to be accredited for both our umbrella and PEO models of pay”

PEO Compared to an Umbrella set-up

Where it differs from an umbrella set-up is that it provides the contractor with a simplified picture of how their pay is presented.

Under a typical umbrella model, the employee would see deductions such as Employer NICs, Apprenticeship Levy and the margin amount retained by the umbrella for its services on a reconciliation statement, which if not properly made clear – as is required by the Freelancer and Contractor Services Association (FCSA) – can cause confusion.

Under the PEO model, these deductions are charged to the hiring company separately.

Hence the contractor sees just their gross pay rate rather than the increased amount or “the uplifted rate”, usually called “the assignment rate”, which is charged by the umbrella to cover these extra costs.

In some cases, but not all, the agency may advertise the uplifted rate to the contractor who then doesn’t always understand why the received rate is lower.

Deborah Murphy, head of operations of the FCSA explains;

“Under the PEO model, the contractor should know exactly what rate they will be getting as it’s not advertised at a higher rate. If operated correctly, it can be a clearer model, but that being said, if the umbrella model is operated correctly and transparently that, too, shouldn’t cause confusion.”

Julia Kermode, CEO of payroll compliance service provider, PayePass Solutions, explains that recent off-payroll changes have caused confusion for contractors who are now being engaged via umbrellas, particularly in relation to assignment rate versus gross pay rate.

She agrees the PEO model simplifies these financial arrangements.

“Umbrellas can be confusing by comparison as their payslips are accompanied by a breakdown of the assignment rate (the uplifted umbrella rate), which shows all employment costs and overheads in addition to the worker’s gross pay.

“The PEO model brings extra clarity to the pay rate for temps and contractors. It is very logical as it charges overheads to the recruitment company on top of workers’ gross pay.

“The main advantage of a PEO is that temps and contractors should always know how much their gross pay rate is. This clarity is important because it should mean that there are no surprises when it comes to payday.”

HMRC Guidance

HMRC provides guidance on the supply of staff and VAT on the GOV.uk site. These two links in particular may be useful for recruitment agencies considering using an umbrella or professional employer organisation (PEO).

HMRC’s policy on supplies of staff is set out in VAT Notice 700/34 (see information on joint employment in section 3.2.)

In the medical sector, a relief applies for some of these employment businesses and you can find out more about this in VAT Notice 701/57 (Section 6).

Umbrella and question mark symbolising "which Umbrella Company to Use?"

New Red Planet (NRP), which is also FCSA-accredited, has seen demand for the PEO model continue to grow over the past couple of years – and the PEO model is one of our most sought after solutions.

Steve McDermott, business development manager at NRP explains;

“This is especially the case in public sectors, such as education and social care, where contractors and the supply chain in general prefer the simplicity provided by the PEO model to the worker,”

He explains that crucial to the ethos of NRP is having an understanding and acting upon the needs and demands of all parties – agencies, contractors and end clients – so it works to ensure it understands the nuances within the different sectors.

Many of NRP’s PEO clients operate in the public sector where there is an increasing desire for workers to be paid through a standard PAYE model, explains McDermott.

“Rather than this forcing an agency to run in-house PAYE, the PEO model allows the agency to continue their main focus on recruitment while working with a payroll partner to provide the employment and payroll solution that is perfect for their supply chain.”

NRP managing director Phil Whelan, was a teacher and headteacher for 15 years prior to taking the helm.

He maintains regular contact with his public sector colleagues to ensure the company maintains an understanding of current legislation and requirements within education and beyond.

“Having worked with schools, agencies and workers on both sides of the fence gives a unique insight into what is desired and required in the public sector environment. PEO gives teachers, and many other such contractors, agencies and end clients, the payroll choice and solution that meets the demands of the whole supply chain.”

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How to Spot a Fraudulent Umbrella Company

by Steve McDermott | Sep 1, 2022 | All Articles, Blog, HMRC, Legislation, News, Recruitment Businesses, UK Employers

How to Spot a Fraudulent Umbrella Company

FCSA Accredited New Red Planet highlight Mini Umbrella Co’s and what to look out for in your supply chain

HMRC updated their Mini Umbrella Company fraud guidance on the 10th August 2022 with one tiny sentence – The additional sentence is as follows:

“These are some of the signs to look out for, although should not be taken in isolation. Most mini umbrella companies will display most, if not all, of the signs in the following sections.”

Although this does not have as much of an impact on the validity of the previous guidance it has been included to highlight that only one of the signs could mean you are using a Mini Umbrella solution.

As mini umbrella companies are low down in the supply chain it may be challenging to spot them. You must be vigilant, especially where the employer of the worker is not the umbrella company you have a contract with. A good starting point is to complete regular due diligence checks.

A list of things to look out for are detailed below:

Unusual company names

Multiple companies are often set up around the same time and given a similar or unusual name. The registered address may not seem suitable for their types of business activities.

Unrelated business activity

The business activities listed on Companies House entries will often not relate to the services provided by the workers.

Foreign national directors

Foreign nationals who have no previous experience in the UK labour supply industry, are often listed as directors. They can replace a temporary UK resident director after a short period of time.

Movement of workers

Employees may be moved frequently between different mini umbrella companies.

Short-lived businesses (also known as transient businesses)

These individual mini umbrella companies have a relatively short lifespan (often less than 18 months) before being allowed to be dissolved by Companies House as they do not meet filing obligations. New mini umbrella companies will then take their place in the supply chain.

You should notice this as you may find that you need to issue a new key information document to workers on a regular basis.

Information from sources such as the Companies House register might help you to spot warning signs when completing your quarterly employment intermediary reports.

What HMRC is doing about mini umbrella fraud

HMRC’s Fraud Investigation Service is using both its civil and criminal powers to challenge those involved in mini umbrella company fraud and those facilitating it.

HMRC has deregistered tens of thousands of mini umbrella companies who they believed were involved in one or both of the following:

exploiting the VAT Flat Rate scheme
exploiting Employment Allowance

Where investigations established that a business in the supply chain knew, or should have known, that there was fraud, HMRC has taken steps to deny other businesses in the same labour supply chain the right to recover VAT input tax.

Input tax is the VAT added to the cost when a person or business buys goods or services that have a VAT liability.

In 2017, HMRC introduced the Trader of Limited Cost Legislation after seeing a surge in the number of mini umbrella companies. This helped to remove a number of businesses setting up mini umbrella companies.

HMRC has been working with and continues to collaborate with trade bodies and other government departments to raise awareness of the mini umbrella company fraud model.

New Red Planet highlight Mini Umbrella Co’s and we are in contstant consultation with the FCSA, who work closely with Government and HMRC on issues of this type.

If you have any questions about how to protect you and your workforce from Mini Umbrella Fraud – Contact us at New Red Planet – who are an FCSA Accredited Umbrella Company and compliant with all HRMC laws and legislation.

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Securing work after RTW goes digital on October 1st

by Steve McDermott | Aug 9, 2022 | All Articles, Blog, HMRC, Legislation, News, Recruitment Businesses, UK Employers

Securing work after RTW goes digital on October 1st

Securing work after RTW goes digital on October 1st will be quite a job without an in-date passport.

Changes to Right To Work checks – In under eight weeks, the Home Office’s new Right to Work changes mean any contractor without an in-date British / Irish passport, or in-date visa, will not be able to get jobs remotely, writes Keith Rosser, chair of the Better Hiring Institute .

The background is much brighter.

Hundreds of thousands of UK workers (including contractors) have benefitted from temporary right-to-work changes during the covid-19 pandemic.

And those changes enabled people to get jobs remotely, online.

For anyone without in-date passports this is all going to change, and soon. In particular, from September 30th 2022, there will be no more right to work checking by video interview.

Hiring done the old-fashioned way

I’m pleased to say I’ve personally helped drive this permanent change to what will be digital right-to-work checks, to enable entirely digital-remote hiring.

But there is a gap.

Under the current proposed scheme which is centred around the usage of certified digital identity providers, any contractor with an expired British or Irish passport, or any contractor without a passport entirely, will not be included in the scheme.

That exclusion means; they will be left to have to secure work the old-fashioned way – by attending, in-person, a hirer’s physical office.

Unfortunately, delays at the UK Passport Office compound the issue. That’s why I warned ContractorUK readers about this back in May.

But the current delays are so extensive that any contractor who is reading this now with a passport soon to expire is very unlikely to be able to renew in time.

Not having an in-date passport could cost some contractors that lucrative placement they’ve got their eye on!

Working with the UK government

Research carried out alongside The Open University’s Professor Jon G Hall has identified as many as one in five UK citizens as being without in-date passports.

It’s a statistic that becomes worse in the regions of the UK, furthest from the major cities.

The previous minister for ‘Levelling Up,’ and the new minister (following the mass resignations that rocked Number 10), both wrote to Home Office on my behalf outlining the issue and the potential solutions.

I have been privy to a letter sent to the House of Lords from the Minister of State acknowledging the issue, thanking me for my efforts in transforming digital hiring and — most importantly — agreeing to look at the proposals with the aim of finding a solution before September 30th 2022. So I am hopeful we can still find the answer in time.

It would be a great shame for many work-seekers and contractors if a solution cannot be found and quickly implemented.

Finally, first things first – stopping the emergence of second-class job candidates

But more immediately, my sights are fixed on ensuring that work-seekers without valid passports don’t become second-class job candidates.

Fortunately, there is a ‘Live Event with UK Home Office’ planned in just four weeks – where employers and others can ask officials any questions about the new scheme.

But that September 1st event is too close for comfort to the deadline of September 30th, after which time individuals will no longer be permitted to verify their right to work remotely if they have an expired or out-of-date passport (or birth certificate).

Due to the positive sounds so far from The Home Office, I am still confident that we can arrive at a scheme by the deadline that is fair for all.

8th August 2022 – Story courtesy of ContractorUK and written by Keith Rosser (Chair of the Better Hiring Institute).

New Red Planet – Compliance – FCSA – Security – Changes to Right To Work checks

New Red Planet’s accreditation comes from FCSA (The Freelancer & Contractor Services Association), The UK’s leading membership body dedicated to raising standards and promoting compliance for the temporary labour market.

FCSA’s “Code of Compliance” is recognised as the gold standard in the industry, and its members go through the most stringent audit processes on an annual basis.

The FCSA Code of Compliance has been developed by Ernst & Young, in consultation with HMRC, and is available to the public on the FCSA website.
All FCSA Accredited Members are tested annually against the FCSA Codes of Compliance by independent, carefully selected assessors.
The assessors are top-tier, regulated accountants and solicitors bound by their own professional standards and code of conduct and are independent of the FCSA.
The FCSA Codes of Compliance are continually updated to reflect current legislation.
Non-compliance by FCSA Accredited Members results in the suspension or termination of FCSA Accredited Membership.
No FCSA Accredited Member is allowed to operate Offshore Schemes, Loan Schemes, Trusts, Managed Services Companies Schemes, Pay-day-by-Pay-day models, or similar.

In Conclusion

If you are looking for a reliable, best-in-practice umbrella company that prides itself on its client-focused approach, contact New Red Planet today using the form below or call us on 0161 713 1730.

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The Public Sector Fraud Authority has been launched by the government

by nrpnewsite | Aug 8, 2022 | All Articles, Blog, Freelance Professionals, HMRC, Legislation, News, Recruitment Businesses, UK Employers

The Public Sector Fraud Authority has been launched by the government

Securing work after RTW goes digital on October 1st will be quite a job without an in-date passport.

The Public Sector Fraud Authority has been launched by the government – The government has launched its new Public Sector Fraud Authority – Jacob Rees-Mogg, Government Efficiency Minister, has launched a new body of the Government named the ‘Public Sector Fraud Authority’.

With an aim to halt fraud expensed by the public purse, the team will consist of counter fraud and data ‘experts’, with a first-year target of saving the taxpayer £180,000,000.

New Red Planet and other FCSA Accredited partners feel that this is definitely a move in the right direction to stamp out non-compliance in the sector.

The team, looking into the Bounce Back Loan scheme, has been equipped with £25 million of funding, with Rees-Mogg stating:

“They (fraudulent attacks) are an attack on the emergency services whose funding they deplete, similarly they steal money from infrastructure projects”.

Public Sector Fraud Authority has been set up - with mini umbrella companies in it's firing line.

Mini umbrella companies are also in the vision of Rees-Mogg and his band of fraud busters, as they clamp down on the too-good-to-be-true umbrella schemes, which leave contractors extremely exploited, vulnerable and defenceless against tax bills.

Interim Public Sector Fraud Authority CEO, Mark Cheeseman OBE said about the new Public Sector Fraud Authority:

“The creation of the Public Sector Fraud Authority represents a landmark in our fight against public sector fraud. We know that fraudsters are a committed, capable and evolving adversary.

To respond to this we must raise our ambition and challenge ourselves to increase our impact on this often unseen and underestimated crime. The PSFA will support public servants across government and public bodies to take that step – to innovate and modernise our approach to fraud.”

The recent success of the National Fraud Initiative (NFI), which between 2020 and 2022, detected and prevented more than £200m of public sector pension fraud, paved the way for the new team to be established.

Read the full Gov.uk article here

How We Can Help…

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