The umbrella liability law: what’s changing?

The government has released draft legislation that will introduce joint and several (J&S) liability for PAYE tax and, soon, NICs where a qualifying umbrella company is involved in the recruitment supply chain.

From 6th April 2026, if your agency works with an umbrella company that fails to account for PAYE/NIC, HMRC can come after you regardless of whether you knew or were at fault.

Who’s at risk?

This legislation applies where:

• The umbrella employs the worker (contracts for services don’t trigger this, but may catch you under separate agency tax rules)
• Your agency (or RPO) is upstream in the chain
• Payment fails downstream

What should recruitment agencies do?

Lawspeed advises two clear strategies for employment businesses (EBs):

1. Ditch umbrellas and engage workers yourself

• Full control over PAYE = full protection.
• Outsource payroll to a trusted non-umbrella payment provider

Pros: Risk-free under the new rules
Cons: Some contractor pushback possible

2. Continue with umbrellas, but protect yourself

If you keep working with umbrellas, you must:

• Use contracts backed by director guarantees (Lawspeed provides these)
• Insist on evidence of insurance, not just trade association membership
• Thoroughly review due diligence provider T&Cs. Many exclude all liability
• Never rely on umbrella-supplied terms

Remember: even umbrellas that pass due diligence may default. The Exchequer case left £11m unpaid. Due diligence doesn’t mean immunity.

The PSC workaround?

Some are suggesting a switch to PSCs. That might work for new placements, but expect resistance from umbrella-employed workers on existing contracts.

How lawspeed can help

We’re advising clients on:

• PAYE or umbrella contract frameworks and PAYE contracts
• Director guarantee clauses
• Agency tax rules liability interpretation
• TUPE considerationsInsurance considerations
• Client and Umbrella renegotiation
• Full Security when relying on due diligence reviews

Call us on 01273 236236 or email info@lawspeed.com for tailored support.

Bottom line?

You’ve got less than a year to minimise your exposure. This isn’t just a legal shift, it’s a commercial risk that could shake your business if ignored.

Take control now.