Umbrella contractors must remain on high alert about new tax rules

New draft legislation, expected to become law in 2026, will make it easier for HMRC to recover unpaid tax by going after other parties in the supply chain.

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The rules, which are being finalised, introduce what’s known as “joint and several liability.” This means if an umbrella company fails to pay the correct amount of PAYE tax and National Insurance Contributions (NICs) to HMRC on behalf of its workers, the tax office can demand the money from the agency or even the client who hired the contractor.

Umbrella industry cleaned up at last?

For contractors, this is a significant development. While they are not directly made liable, the new rules put immense pressure on clients and agencies to ensure they are working with fully compliant umbrella companies.

Moreover, the fact that HMRC has published guidance this far in advance suggests the draft legislation will pass into statute largely untouched. It’s unusual to see guidance precede the final legislation.

-Crawford Temple, CEO Professional Passport

This new scrutiny should benefit contractors, as it forces the industry to clean up its act. However, it also means contractors must be more vigilant than ever. The old assumption that the umbrella company handles everything is no longer enough.

To protect themselves, contractors must take an active role in ensuring their taxes are being paid correctly.

What contractors must still do:

Workers can easily fall into tax liability by ignoring red flags or assuming everything is working as it should. The saying “if it sounds too good to be true, it probably is” applies to payroll arrangements.

Watch for “loans,” “grants,” or other non-salary payments such as profit shares, as these can often mean tax will be payable later by you. Reputable umbrella employers only pay salary wherever possible, as other payment types may be used as tax avoidance measures. Be cautious with expense payments and check them against receipts you’ve provided to your umbrella employer.

Matt Fryer, Managing Director at Brookson Group, suggested in a previous report by The Freelance Informer, “Check your net take-home pay against the amount actually received into your bank account. Any difference between these amounts is a red flag, and you should query the difference with your umbrella provider.”

By applying vigilance to your sign-up process and ongoing relationship with your umbrella employer, you can stay on the right side of compliance. These three steps will help:

Check your payslips: Always review your payslips carefully. Ensure that the correct amounts are being deducted for PAYE income tax and NICs. If a payslip looks unusual or too simple, ask for a detailed breakdown.

Understand the deductions: Be aware of what your umbrella company is taking from your pay. Ensure all deductions are legitimate business expenses and not disguised fees or tax avoidance schemes.

Question everything: If something seems too good to be true—for example, if a company offers a significantly higher take-home pay than competitors—it probably is. Ask tough questions about how they achieve this.

For even more tips on protecting yourself before signing on with a new umbrella company, check out this article: “Nothing beats your own due diligence on an employer”: Take these steps before you become an umbrella company worker – Freelance Informer

Joint and Several Liability

HMRC’s new approach aims to stop rogue umbrella companies from operating by making everyone in the supply chain accountable. This move shifts the burden of responsibility and should lead to greater transparency.

Crawford Temple (pictured) CEO of Professional Passport, an independent assessor of payment intermediary compliance, said:

“HMRC’s updated guidance on Joint and Several Liability confirms what I have been saying all along: agencies will carry liabilities they cannot control. The manual makes it clear that if an umbrella fails to meet its PAYE obligations, HMRC will pursue recovery from the relevant parties in the chain – recruiters included. 

“Moreover, the fact that HMRC has published guidance this far in advance suggests the draft legislation will pass into statute largely untouched. It’s unusual to see guidance precede the final legislation.”

PAYE payments

Crawford also said the guidance validates the warnings about monthly checks and so-called ‘guarantees’ which do not remove the exposure.

He said, “The only way for agencies to eliminate risk is to take direct responsibility for PAYE payments.”

In the words of the HMRC: “It does not matter which party pays or how much each party pays as long as the amount is paid in full”.

He warned that those who dismissed this as alarmist now have HMRC’s own guidance proving otherwise.

“Recruiters need to prepare today for the realities of April 2026,” Crawford said. Continuing, “Transparency and control must drive our approach – anything else risks serious financial consequences for agencies and damage to the wider market.”