What changes are coming into effect for those who hire temporary workers?

Do you engage workers who are employed and paid by a so-called ‘umbrella company’? Or, perhaps you’re not sure. Either way, you may be affected by new legislation which will apply from 6 April 2026. Non-compliance may have substantial financial implications.

Overview

Recently, there has been a significant shift since the private sector IR35 reforms took effect in 2021. Since then, many employers turned to umbrella companies (companies which employ and operate payroll for contractors on behalf of the hirer/engager) as a less onerous and risky way to engage contractors when it comes to PAYE compliance.

New PAYE rules will make recruitment agencies – or hirers/end clients where there is no agency (or where the agency is offshore or connected to the umbrella) – jointly and severally liable with the umbrella company for any underpaid PAYE and NICs. The new rules will apply to payments made on or after 6 April 2026 under new or existing arrangements.

Given this, HMRC will potentially be able to recover shortfalls directly from the hirer, if the umbrella fails to operate payroll correctly.

The government’s stated aim is to protect workers from unscrupulous operators who use disguised remuneration schemes or simply fail to remit tax. But for employers and agencies, the message is clear: you can no longer outsource risk blindly.

This change specific to umbrella companies also highlights the wider need to understand every link in the contractual chain when engaging temporary labour (e.g. whether they’re engaged via a personal service company, an agency, under a self-employment agreement, or any other such arrangement).

What are the implications of getting it wrong?

Non-compliant engagements carry significant financial and operational risk. The risk and potential cost is not theoretical.

If HMRC identifies non-compliance under the new legislation, hiring organisations could face:

• recovery of unpaid PAYE and NICs (plus interest and penalties). HMRC can look back up to 6 years for PAYE and NIC (where there has been careless behaviour) and sometimes further back;
• the distraction of an HMRC enquiry that can potentially drag on for years; and
• reputational damage.

What exactly changes?

From 6 April 2026, the legislation (introduced in the Finance Bill 2025-26) amends the Income Tax (Earnings and Pensions) Act 2003. Where an umbrella company (potentially any third-party company which supplies a worker) sits in the supply chain, the ‘top’ agency (or the hirer/end-client in direct or offshore scenarios) in the contractual chain must ensure the umbrella operates PAYE and NICs correctly on payments to the worker.

Legislative addition to existing IR35 and agency rules

The 2026 changes are a symptom of a broader trend: responsibility for tax and employment compliance increasingly rests with the end client unless the chain is watertight. The new legislation sits alongside existing extensive legislation covering engagement via personal service companies (IR35) and agencies.

Employers must map every engagement and ask: who is really employing this person, and who is liable if things go wrong?

What should employers do now?

With only weeks until the new rules bite on payments made on or after 6 April 2026, the time for action is now. The action required will depend on your specific circumstances, including how you currently engage temporary workers. Irrespective, practical steps should include:

• mapping your entire off-payroll/temporary workforce and identifying every link in the supply chain, including where the new legislation may apply;
• reviewing contracts and commercial terms in the context of the new legislation (and also existing IR35 and agency legislation where applicable) to confirm where the liability truly sits; and
• implementing (or strengthening) due diligence processes for all umbrella engagements (and intermediaries more widely).

The 2026 umbrella reforms are not an isolated compliance tweak; they are part of a clear direction from HMRC and government that end clients must take ownership of their labour supply chains.

Ignoring the wider picture is no longer an option. If you would like to review your current arrangements, conduct a supply-chain audit or design compliant engagement processes, please get in touch. Early action will protect your organisation and give you certainty in an increasingly regulated marketplace.

If you have questions or concerns about the changes, please contact Lee McIntyre-Hamilton. Lee is a tax advisor specialising in employment tax.