Liabilities looming for recruiters using umbrella companies

This is a Guest blog written by REC Business Partner, Markel Tax

From April 2026, new legislation comes into effect which sees companies who contract with umbrella companies tied jointly and severally to the umbrella’s tax and NI liabilities.  Recruiters are undoubtedly the largest users of umbrella companies and are firmly in the crosshairs of HMRC.

This blog will arm you with the tools you need to safeguard your business against unexpected liabilities to ensure you business succeeds in 2026.

When will I be jointly and severally liable?

In short, any time there is an umbrella company and a recruiter in the supply chain, the recruiter that holds the contract with the client will be jointly and severally liable.  If that party is non-UK residen,t then liability sits with the UK resident entity closest to the client . 

In more complex chains with multiple recruiters, the relevant party tied to the liability will not be the one that holds the contract with the umbrella.

What am I liable for?

Unpaid tax and NI owed by the umbrella company.  This could be any amount relating to Tax and NI which should have been paid on the umbrella employees pay.  Having recently attended an HMRC webinar, HMRC confirmed that they would initially seek recovery from the recruiter, not the umbrella company.

What is an umbrella anyway?

The draft legislation doesn’t define an umbrella company -it is simply any employer contracting to supply the services of an individual where that individual has no material interest in the employer. 

This means that any third-party employer could bring a recruiter into the legislation.

The legislation also contemplates other operating models under “purported umbrella” provisions which include things like hybrid models, employee benefit trusts and models where other parties believe the individual is employed but in reality are not.

So what should I be doing?

Knowing the parties in your supply chain is critical, having a full understanding of how individuals are engaged and paid.  While the legislation is new, the tax compliance it underpins is not.  What umbrellas need to comply with in April 2026 is the same as  their current obligations.  This means due diligence can, and should, be carried out now.

While payslip checking tools will certainly have their place, as will the need for demonstrative compliance audits, we would caution against sole reliance on any one of these in isolation.  Relying on a third party will not remove liability if HMRC consider there is tax owed.

PAYE compliance for umbrella companies can be reviewed now. Processes can be tightened, and any issues can be flagged and rectified.

The relevant recruiter can be identified now and work can be done by them to seek assurances from the supply chain below them. 

Contracts can be reviewed now and strengthened, and not just for umbrella companies employing people. Where there is a third party supplier in the chain, regardless of how the individual is employed, all contracts throughout the chain should be accurate and entirely transparent about how the individual is engaged.

Markel Tax

As the first to win IR35 at Tribunal level we have successfully taken more IR35 and Status case to Tribunal than any other adviser, and we have been advising on umbrella companies for over 20 years.  We regularly help our recruitment clients by conducting supply chain reviews of their contracts for IR35, self-employment and umbrella compliance, either as a one off health-check or part of our bespoke retainer package.  If you are looking for a advice, or would simply like a second opinion, please contact us directly at contractorsolutions@markel.com

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