UK Umbrella Payroll in 2025–26: Joint & Several Liability and Recruiter Risks

by Steve McDermott | Aug 15, 2025 | Blog, Employee Rights BIll, HMRC, Legislation, News, Recruitment Businesses, UK Employers, Umbrella Legislation, Uncategorized

UK Umbrella Payroll in 2025–26: Joint & Several Liability and Recruiter Risks

The UK umbrella payroll market in 2025–26: what joint & several liability means for recruiters (and why payment terms are now a red flag)

Key takeaway: From 6 April 2026, if an umbrella company in your supply chain fails to correctly operate PAYE/NIC, HMRC can recover the full debt from the recruitment business (or the end-client). That’s the new joint & several liability (JSL) regime now moving through the Finance Bill 2025–26 process.

Agencies must upgrade their umbrella due diligence and rethink commercial arrangements – especially payment terms, rebates and incentives – because those can create cash-flow pressure and increase the chance of non-compliance that lands back on you.

What’s changed?

New legislation: The government’s umbrella reform will make the employment business (or, where there’s no agency, the end-client) responsible for accounting for PAYE/NIC where an umbrella sits in the labour supply chain. Effective for payments made on/after 6 April 2026.
Policy driver: HMRC’s response to widespread non-compliance in the umbrella market (e.g., disguised remuneration, mini-umbrella abuse). Government expects JSL to clamp down by shifting risk up the chain. Guidance around mini-umbrella fraud was also updated in August 2025.

Why this matters to recruitment companies

One of the biggest risks is that tax debt can quickly become your debt. If an umbrella company underpays or fails to hand over PAYE and National Insurance – whether on purpose or because of cash flow problems – HMRC can come after your agency for the whole amount. That includes interest and penalties, even if you’ve already paid the umbrella.

Supply chain checks are no longer optional

This is why supply chain checks can no longer be treated as a simple tick-box exercise. The old “preferred supplier list” checks won’t be enough. Agencies will be expected to show continuous monitoring, keep proper records, and act fast if an umbrella shows signs of non-compliance. Trade bodies and professional groups are already advising agencies to prepare in this way.

Protecting your reputation

There’s also the question of reputation. HMRC has been stepping up action against fraudulent umbrella arrangements, such as mini-umbrella schemes that exploit VAT rules or allowances. Payroll bodies are publicising recent cases, and any agency caught on the wrong side risks serious damage to its brand.

The hidden risks in umbrella payment terms

Another hidden risk comes from the commercial terms offered by umbrellas. Some providers tempt agencies with extended payment terms, rebates, marketing allowances or ongoing incentives. Under the new rules, these can all add to your exposure. Long payment terms or big rebates might look good on paper, but they can leave umbrellas short of cash to pay PAYE and NIC on time. If that happens, HMRC won’t hesitate to pass the bill on to your agency.

Incentives and poor practice

There’s also the problem of incentives being out of step with worker protection. Campaign groups and official guidance have both warned that agency kickbacks encourage poor practice in the umbrella sector and these are now seen as clear warning signs.

When a deal looks too good to be true

Finally, be wary of deals that seem too good to be true. If rates look unusually generous, ask; how the umbrella is funding statutory holiday pay, employer NIC, the apprenticeship levy, and pensions. With costs rising, especially employer NIC, an offer that looks unsustainable often points to corners being cut on tax.

Bottom line: If you’re taking payment terms or rebates from your umbrella partner, you’re subsidised by the same cash that should be ring-fenced for PAYE/NIC. Under JSL, that’s your risk.

The UK umbrella payroll market in 2025–26: what joint & several liability means for recruiters (and why payment terms are now a red flag)

What “good” looks like now (a recruiter’s checklist)

Contracts & commercials

Remove or cap rebates, referral fees, “marketing support,” and extended payment terms. If you keep any, require the umbrella to maintain ring-fenced PAYE/NIC accounts and provide bank attestations. Document the rationale.
Include JSL-ready clauses: right to audit in real time, information sharing, step-in/termination on compliance triggers, escrow/retentions tied to tax compliance certifications. (Take legal advice.)

KYC & continuous monitoring

Verify the umbrella’s corporate identity, directors, VAT/PAYE registrations, and latest Companies House filings; monitor changes monthly.
Require evidence each pay cycle: RTI submissions, gross-to-net reports, pension files, and proof of PAYE/NIC remittance that reconciles to your worker population. Store this centrally with an audit trail. Sector guidance now stresses moving from “point-in-time” checks to ongoing ICAEW.
Watch for red flags: unusual take-home claims, offshore bank accounts, repeated advances, mini-umbrella patterns (multiple linked companies with near-identical names), and aggressive margin deals. Use HMRC’s updated mini-umbrella fraud checklist.

Worker outcomes

Confirm correct operation of holiday pay, AWR parity, pensions auto-enrolment, and itemised payslips. Mistreatment here often accompanies tax non-compliance. Government’s umbrella initiative explicitly targets worker rights parity.

Governance

Nominate a SMF/Senior Manager or director as supply-chain risk owner.
Run a JSL impact assessment on your temp book: quantify exposure by umbrella, sector and client; set concentration limits.

What to tell clients and contractors

Clients: “From April 2026, if the umbrella fails, HMRC can come after us—or you if there’s no agency. We’ve tightened PSL standards, removed incentives, and implemented real-time payroll verification to protect the supply chain.”
Contractors: “We will only partner with umbrellas that evidence proper PAYE/NIC and worker rights. Any promise of inflated take-home is a red flag.” (Worker groups and HMRC warn that such claims often signal avoidance.)

Does JSL apply if there are multiple agencies in the chain?

Yes—the agency with the direct contract with the end-client carries the responsibility; if there’s no agency, the end-client Effective for payments from 6 April 2026.

Is this just HMRC “guidance”?

The measure is set out in Finance Bill 2025–26 materials and GOV.UK policy papers; implementation is targeted for April 2026.

Are mini-umbrella schemes still a thing?

Yes, and HMRC has just updated its guidance—in August 2025—reinforcing checks agencies should complete and how to report suspected fraud.

Action plan for the next 90 days

Map exposure: list every umbrella on your PSL, associated volumes, and any commercial incentives/payment terms.
Renegotiate: remove or limit incentives/extended terms; where retained, demand PAYE/NIC proofing and ring-fencing.
Operationalise monitoring: implement pay-cycle evidence collection and reconciliation; set automated alerts for anomalies.
Train consultants: make acceptance of gifts/rebates a disciplinary issue; refresh AML/ABAC and “speak-up” channels. Government messaging explicitly warns recruiters against inducements.
Brief clients with a one-pager on your JSL approach and updated PSL criteria.
Essential questions for Recruiters answered by Umbrella Man… Your Questions Answered – NRP

This blog is general information, not legal or tax advice. For specific scenarios, speak with your professional advisers.

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Your questions answered about the new Umbrella Legislation and its impact on the recruitment sector

by Steve McDermott | Aug 6, 2025 | Employee Rights BIll, HMRC, Legislation, News, Recruitment Businesses, UK Employers, Umbrella Legislation

Your questions answered about the new Umbrella Legislation and its impact on the recruitment sector

Need Answers To Your Umbrella Legislation Questions?…

Let our expert ‘Umbrella Man’ shed a light on several questions recruiters and end clients have asked about the legislation that comes into play on April 6th, 2026.

Let’s hear what he has to say in response to your questions…

Your questions answered about the new Umbrella Legislation and its impact on the recruitment sector - Umbrella Man superhero cartoon character in office

What is the shift in risk and responsibility?

The new legislation fundamentally shifts the responsibility for PAYE compliance up the labour supply chain, placing greater accountability on recruitment agencies.

What is Joint and Several Liability?

Recruitment agencies will become jointly and severally liable for unpaid PAYE if their partnered umbrella company fails to meet its tax obligations. This means HMRC can pursue the agency in the first instance for any unpaid amounts, even if the agency was not directly involved in the non-compliance.

What is the increased burden on compliance?

Agencies will need to significantly enhance their due diligence processes and ongoing monitoring of umbrella companies to ensure compliance and mitigate potential liabilities. This includes verifying their compliance status, reviewing detailed compliance documents, and auditing payslips and reconciliation statements.

What is the potential rise in costs?

The need for increased due diligence, compliance tools, and ongoing monitoring may result in higher operational costs for recruitment agencies.

Could there be any reputational damage for getting it wrong?

Agencies may face reputational damage if they are associated with non-compliant umbrella companies or those engaging in questionable pay practices.

How do I navigate the new and complex regulatory landscape?

The new legislation, alongside the Employment Rights Bill, creates a complex regulatory environment that agencies must navigate to ensure continued compliance.

Umbrella superhero giving his thoughts on the umbrella legislation and employee rights bill

Umbrella Man’s thoughts on tackling the legislation:

Strengthen due diligence processes: Implement robust and continuous checks on umbrella companies, including using due diligence tools and verifying compliance certifications. FCSA members (New Red Planet Ltd is one) hold the highest level of compliance in the market.
Partner with certified umbrellas: Prioritise working with independently certified and accredited umbrella companies (FCSA recommended companies such as New Red Planet) that can provide verifiable proof of compliance.
Stay informed and engage with industry updates: Monitor updates from HMRC and industry bodies like the FCSA, REC, and New Red Planet Ltd website and LinkedIn page to stay ahead of regulatory developments.
Proactive Approach: Begin preparing for the changes now, rather than waiting for the final implementation, to avoid potential financial and reputational risks. To stay ahead of the game and have a no obligation conversation with an FCSA Accredited member, just give New Red Planet Ltd a call or email on the details below.
Consider Diversifying Candidate Payment Options: Explore alternatives to umbrella options, such as PEO or direct PAYE employment, to reduce exposure to the new risks associated with the legislation. New Red Planet Ltd can offer many options to our clients including outsourced payroll and Bureau options to reduce in-house employment, compliance and legal costs associated with bringing payroll inhouse.
Centralise Documentation: Ensure contracts, payment records, and proof of PAYE compliance are accessible and consistent for potential HMRC inquiries.

By implementing these measures, you can proactively manage the risks associated with the new umbrella company legislation, ensuring compliance, protecting your business, and building stronger relationships with both clients and contractors.

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If you would like to know more about New Red Planet Products or services, request an information pack by completing the quick form below

How to Spot a Fraudulent Umbrella Company

by Steve McDermott | Sep 1, 2022 | 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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If you would like to know more about New Red Planet Products or services, request an information pack by completing the quick form below

HMRC continue to name and shame tax avoidance schemes and those involved in the supply chain

by Steve McDermott | Aug 10, 2022 | Blog, HMRC, Legislation, News, Recruitment Businesses, UK Employers

HMRC continue to name and shame tax avoidance schemes and those involved in the supply chain

More firms named in HMRC Clampdown on Tax Avoidance Schemes

HMRC continue to name and shame tax avoidance schemes and has shared another four companies, on their ‘named tax avoidance schemes, promoters, enablers and suppliers’ list and now takes the list to 11 on their website with many more yet to be named.

The company names can be found on HMRC’s website under the page for the Current list of named tax avoidance schemes

The 4 new named companies on the HMRC list were found to be using Tax Avoidance Schemes.

What HMRC Uncovered

HMRC found the main theme of the schemes being used is the worker receives two payments, of which the second has not been taxed under PAYE, disguised as a loan or grant.

HMRC are looking to clamp down on these so-called Loan/ Grant Schemes as they are missing out on monies owed to HMRC but because they also leave in most cases, the worker, recruiter or end client to pick up the bill, as many of these non-compliant payroll companies will close overnight.

According to the FCSA website – 3 of the 4 most recent companies named are now in the process of insolvency.

How To Protect Workers, Recruiters And End Clients

The only way to fully protect contractors, recruiters and end clients… is to choose an FCSA Accredited payroll provider who has many checks in place to guarantee that all its partners work within the lines HMRC set out.

To ensure you’re always up to date – visit the government’s website

If you want to check the very latest named and shamed tax avoidance schemes, you can visit the following page on the government’s website: Current list of named tax avoidance schemes, promoters, enablers and suppliers. It will provide all the information you need about each named company and advice if you’ve engaged with one for your payroll.

Conclusion

Remember – first things first – pick a compliant umbrella company like New Red Planet and rest assured you and your tax affairs will be managed correctly and in accordance with all UK Tax and Employment laws.

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.

Find out more

If you would like to know more about New Red Planet Products or services, request an information pack by completing the quick form below