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Agencies - Are You Ready For April 2026?

  • elin9975
  • Jun 23
  • 3 min read

Huge tax liability changes are coming next April – are your Umbrellas in order?

 

In June 2023, the previous the UK government launched its efforts into tackling non-compliance in the Umbrella company market, publishing the Umbrella consultation[1]. The current government have continued this work – demonstrating its commitment to clamping down on unscrupulous payment practises in the industry. Key stakeholders in the temporary workforce market from recruitment firms, to the FCSA, and independent contractor specialists have been involved in policy proposals with both the Treasury and HMRC. Two years on, after much discussion, we’re on the cusp of having the draft legislation formally outlined (expected mid-July.)

Whilst the official framework is still to be announced - here’s what we know so far;

 

  • Under HMRC’s proposed changes (still awaiting Treasury approval) liability for tax will be shared between the agency and Umbrella company.

  • The primary responsibility for any tax shortfalls will lie with the lead agency – in other words, the recruitment agency is ultimately liable for any unpaid tax.

  • If the agency were found to be engaging with an uncompliant Umbrella model to engage it’s workers, they would be found liable for any shortfall if the arrangement was uncovered and exposed.

  • Where there is no agency in a labour supply chain, this primary responsibility will sit with the end client.

 

This marks a significant shift in how tax risk is managed across the labour supply chain, and aimed at reducing non-compliance.


For anyone who is not working with a compliant Umbrella – it’s now a real risk. The latest proposals state that it will be a ‘strict liability approach’, with no room for excuses, regardless of lack of awareness, fault or intent. Indeed, this shift in liability would be similar to the off-payroll IR35 changes, in that another entity is made responsible and therefore polices the supply chain. Similar also to the 2014 false-self employment legislation that polices CIS in the construction industry.



What does this mean for us as an agency?

Should you already be using compliant Umbrellas, please be reassured that nothing will need to change in the day to day operations of your business.


It’s always advised however, that it’s good practise to thoroughly audit and vet your Umbrella supply chain. 


  • Identify the entities in your supply chain and understand how workers are being engaged and paid – what contracts have been signed for example? Are they employed or self-employed?

  • Check payslips and reconciliation statements you have obtained from workers for unexplained deductions (sometimes called skimming) or underpayment of Minimum Wage.

  • Does the Umbrella company claim they are ‘HMRC approved’? Be wary - HMRC does not actively endorse or promote any Umbrella companies.

  • Check the accreditations of the Umbrella, and cross check these with said accreditation’s website.

  • Check the Umbrella company that you work with on Companies House and look into their documentation. Are they newly incorporated? This may suggest they don’t have the experience in compliance. Check the financials – if poor, this could suggest difficult cashflow. Can they therefore guarantee to be able to pay your workers?

  • Has an Umbrella promised increased take-home pay, or additional untaxed payments? This could be a sign of tax avoidance.

  • Agencies and clients will likely need to adopt real-time due diligence and auditing measures to effectively manage their compliance risks.

 

As we await the final draft legislation, the direction is evident - agencies and clients will no longer be able to distance themselves from responsibility for Umbrella tax compliance.


As one of the recognised, original respondents to the 2023 consultation, Clipper Contacting have been following the developments extremely closely and warmly welcome the proposals – we’re proud to be playing our part in promoting a more transparent and compliant contracting landscape. With 16 years of experience of navigating various complex legislations, we are ready and able to guide and support you through this next stage, if you so require it. Contact your usual dedicated point of contact, or the office on 0150233170 for more information.

 

 

 


 

 


 

 
 
 

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