From 6 April 2026, an employment agency in the supply chain—or the end client if there is no agency—must ensure PAYE is operated correctly when an umbrella company employs the worker. The umbrella can still employ the worker and run payroll; the change is that the agency or client cannot outsource its underlying responsibility. HMRC may recover an underpaid amount from the responsible party.
What changed, and when?
The measure was announced at Autumn Budget 2024 and applies to payments made to workers on or after 6 April 2026, in both new and existing labour supply chains. It addresses arrangements where an umbrella company employs a worker supplied to an end client through an agency or other chain.
The statutory provision is described as joint and several liability with the umbrella company for relevant PAYE amounts. In practical terms, HMRC’s current guidance says the agency or, where there is no agency, the end client is responsible for ensuring PAYE is operated correctly and may be pursued for an underpayment. See HMRC’s umbrella company guidance and the Finance Act 2026, section 24.
Do agencies have to run PAYE themselves?
No. The change is primarily about responsibility and liability, not a requirement for agencies to calculate every payslip in-house, employ workers directly, or stop using umbrella companies. The umbrella company remains the employer and continues to calculate and pay PAYE for its employees. An agency or client can outsource payroll operations, but remains responsible if the provider fails to operate PAYE correctly. The government set out that distinction in its response to the umbrella company consultation.
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Who is responsible in each arrangement?
| Arrangement | Party responsible for ensuring PAYE is correct | Payroll and employment role |
|---|---|---|
| An agency contracts with the end client to supply a worker employed by an umbrella company | The agency that has the contract to supply workers to the end client. HMRC may recover an underpayment from it. | The umbrella company remains the worker’s employer and operates payroll. |
| No agency is involved in the chain | The end client. HMRC may recover an underpayment from it. | The umbrella company remains the worker’s employer and operates payroll. |
The umbrella company must work out PAYE correctly, pay HMRC on time and provide the agency or client with information needed to check compliance. The worker remains employed by the umbrella under this arrangement; the worker can use HMRC’s income tax estimate tool to check an estimate of deductions and take-home pay.
Which arrangements are covered or excluded?
HMRC defines an umbrella company broadly as a business supplying labour under a contract of employment. The rules apply to payments on or after 6 April 2026 and cover existing as well as newly formed chains. Some arrangements are excluded, including qualifying workers engaged through their own personal service company, managed service company cases, salaried members of limited liability partnerships, and workers treated as employed by an agency under agency legislation.
Classification can depend on the actual arrangements: HMRC notes that a purported umbrella arrangement involving one of these categories may still fall within the rules in some circumstances. Where any part of the supply chain is outside the UK, check HMRC’s Employment Status Manual rather than assuming the domestic summary applies.
What agencies and clients should do
HMRC expects businesses to increase due diligence when choosing and monitoring umbrella companies. A workable process should make it possible to verify that PAYE is being operated correctly, rather than relying only on a provider’s assurances.
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- Assess the umbrella provider’s tax and payroll compliance before engaging it, and repeat checks on a documented schedule.
- Request and review information that supports verification of PAYE calculations and payments to HMRC.
- Explain the employment arrangement and pay rates clearly to workers. HMRC warns that the assignment rate paid by the agency to the umbrella is not the worker’s gross pay; gross pay will be lower.
- Issue an accurate key information document, include the umbrella company’s name, and update the document when relevant details change.
- Use HMRC’s guidance on working through an umbrella company and on identifying tax-avoidance schemes involving umbrella companies.
Can a business switch to its own payroll?
Yes. The rules do not require a single operating model: a business may retain an umbrella provider to perform payroll or choose to operate payroll itself. Direct payroll can change who pays the worker and may affect employment status, including whether a worker is an agency “limb (b) worker” in some circumstances. That result is not automatic; it depends on the arrangement. Businesses comparing models should consider legal responsibility, who performs calculations and submissions, the evidence and frequency of compliance checks, worker status and rights, clarity of assignment and gross pay, and administrative costs.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How large is the expected impact?
HMRC’s policy paper estimated that about 700,000 individuals may be affected, and that roughly 30,000 agencies and 400 umbrella companies could face significant administrative impact. It estimated one-off familiarisation and training costs of £9.9 million and continuing annual costs of £21.7 million; the continuing-cost estimate assumed businesses were not already carrying out due diligence, so actual additional costs may be lower where checks already exist. These are policy estimates, not measured post-implementation outcomes. HMRC also published forecast Exchequer impacts attributed to Autumn Budget 2025 and certified by the Office for Budget Responsibility:
| Financial year | Forecast Exchequer impact |
|---|---|
| 2025–26 | £155 million |
| 2026–27 | £715 million |
| 2027–28 | £635 million |
| 2028–29 | £540 million |
| 2029–30 | £425 million |
| 2030–31 | £255 million |
These figures are forecasts rather than realized receipts. HMRC’s policy paper also estimates that at least 700,000 workers were engaged through umbrella companies in 2022–23 and that at least 275,000—and likely significantly more—were engaged at some point that year by umbrellas that failed to comply with tax obligations. Those are HMRC analyses reported in the government’s 2025 consultation response, not counts of workers affected by proven non-compliance after the rules took effect.
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