The industry’s been rightly focused on the joint and several liability risks under Chapter 11 of the Finance Bill, but there’s another serious consequence baked into this legislation, and it’s flying under the radar.

We’re talking about TUPE transfers.

At first glance, it may not look like much. But for agencies who’ve historically used umbrella companies, the result could be an unexpected and entirely avoidable employment law time bomb.

Quick recap: what’s in Chapter 11?

Chapter 11 introduces joint and several (J&S) liability for unpaid employment taxes (PAYE and NICs) where an umbrella company is involved in the supply chain.

The legislation defines an umbrella company (in summary) as a business that:

• Employs its workers, and
• Supplies those workers to a third party

It sounds straightforward, until you realise that this definition also applies to recruitment agencies who employ their own temp or contractor workforce.

That’s right. Even agencies who have nothing to do with umbrella companies could be caught, simply because they operate an employee worker model and supply workers to clients.

So what’s the TUPE problem?

When agencies seeking to avoid liability stop using umbrella companies (a likely scenario for many), the umbrella employer will terminate the worker’s employment. This is where the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) comes into play.

Under TUPE, when a service is transferred between providers, the associated employees, along with their existing terms and continuity of employment, transfer as well.

In this specific situation, the implications are:

• The agency steps in as the new employer.
• The umbrella worker’s original contract terms remain binding.
• The worker is integrated into the agency’s PAYE payroll system.

While this process might seem straightforward, it has a significant consequence: by inheriting the employment, the hirer also assumes joint and several liability for any employment taxes that the agency fails to pay.

Yes, you read that correctly. The hirer can become responsible for the agency’s tax debt, simply because of an employment transfer triggered by TUPE.

Was this really the intention?

We don’t know. But whether it’s a legislative oversight or a calculated consequence, the impact is the same. Hirers may pull away from agency workers altogether. Agencies may face unexpected payroll and contract risks. Contractors may face disrupted employment.

Nobody gets what they want, except maybe HMRC, after the fact.

And all of this comes from a piece of legislation that’s supposed to target non-compliant umbrella companies, not legitimate agency operations.

What can agencies do?

Right now, the safest routes include:

• Reviewing all terms and contract structures with umbrella suppliers
• Seeking advice on employment liabilities, TUPE exposure, and the Chapter 11 impact on clients and your own risk profile.

Get Ready for 2026

Lawspeed has consistently raised concerns about this legislation, including its vague umbrella company definition, in technical consultations and through ARC.

To understand all the proposed changes to umbrella tax, conduct regulations and employment law, and understand what’s coming and how to protect your business, join us at our next Lawspeed seminar (sponsored by ARC) on:

🗓 14th January 2026
📍 BMA House, London

Chapter 11 isn’t just a tax issue, it’s a liability maze. And if you’re not planning now, you might be inheriting more than just a contractor.

For legal advice, contract reviews, or to restructure your PAYE/umbrella model before April 2026, get in touch with us.