The New Joint and Several Liability Framework
From 6 April 2026, substantial changes to umbrella company legislation will reshape how businesses engage with contingent workers. The UK government has published draft legislation that introduces joint and several liability for Pay As You Earn (PAYE) taxes within labour supply chains. This represents a fundamental shift in risk management for organisations that utilise umbrella companies.
Under these proposed provisions, recruitment agencies and end clients will become jointly responsible for any unpaid PAYE income tax, National Insurance Contributions and Apprenticeship Levy if an umbrella company fails to meet its obligations. HM Revenue and Customs (HMRC) has indicated it will pursue the “relevant party” in the first instance rather than the umbrella company itself. This means agencies and end clients may face immediate financial liability for tax compliance failures elsewhere in their supply chain.
The legislation is expected to be finalised in the final quarter of 2025 (Q4 2025). We will continue to monitor developments and provide further updates as additional information becomes available.
Why These Changes Matter
The government estimates that over 700,000 workers were engaged through umbrella companies in 2022/23, with more than a third working through non-compliant structures. This non-compliance costs the Exchequer approximately £500 million annually. The legislation aims to close this gap by placing responsibility with those who have greater control over which umbrella companies enter their supply chains.
For businesses that rely on contract and interim talent, these changes require immediate attention. Organisations can no longer assume compliance without verification. The financial implications of getting this wrong could be substantial, potentially undermining the cost benefits and flexibility that contingent workforce solutions provide.
Who Is Affected by the New Legislation
The draft legislation defines an umbrella company broadly as a third party that “carries on a business of supplying labour” and employs the worker. This definition extends beyond traditional umbrella companies to include professional employment organisations and employers of record. It may also include organisations supplying employed staff on secondment arrangements.
The “relevant party” who shares liability will typically be the recruitment agency contracting with the end client. However, if the umbrella company contracts directly with the end client or if the agency is connected to the umbrella company, the end client becomes the relevant party bearing joint liability.
Preparing Your Business for April 2026
With less than a year until implementation, businesses must take proactive steps to mitigate their exposure. Leading organisations are already developing robust supply chain assurance programmes that go beyond relying on third-party accreditations, which HMRC has acknowledged are insufficient on their own.
Effective preparation includes:
- Auditing your supply chain: Identify all umbrella arrangements currently in use.
- Enhancing due diligence: Develop protocols that verify compliance beyond accreditations.
- Documenting compliance checks: Maintain systematic records of verification activities.
- Training key personnel: Ensure tax and HR teams understand the new risk profile.
- Reviewing contracts: Update agreements to include appropriate protections and information rights.
Market Impact and Opportunities
The umbrella company market will likely see significant consolidation as these changes take effect. Compliant umbrella companies with transparent processes and strong governance will thrive, while those unable to demonstrate compliance will struggle to retain clients. This presents an opportunity for businesses to review and potentially strengthen their supplier relationships.
Forward-thinking organisations are using this legislative change as a catalyst to modernise their contingent workforce management approach. By implementing centralised systems that provide visibility across all engagements, businesses can simultaneously reduce risk and improve operational efficiency.
As the legislation progresses towards finalisation in Q4 2025, we will share additional insights and recommendations.
How Arthur Supports Your Compliance Journey
Arthur provides comprehensive interim recruitment and payroll solutions specifically designed for the insurance sector. Our deep expertise in contract workforce management positions us perfectly to help clients navigate these legislative changes. With over 15 years of market expertise, we deliver specialist talent while managing the full compliance lifecycle.
Our internal PAYE payroll solution offers complete contract administration, Right to Work verification, timesheet management, and weekly payroll processing. Most importantly, we maintain full compliance with IR35, Agency Workers Regulations, and are already preparing for the 2026 umbrella company reforms. By partnering with Arthur, you gain access not only to exceptional insurance talent but also to a fully managed, secure process that aligns with current and upcoming legislation. Allow us to handle the complexity of compliance while you focus on delivering business outcomes with confidence and pace.
