From 6 April 2026, the rules governing how recruitment agencies interact with umbrella companies change fundamentally. Under new umbrella company joint and several liability provisions, agencies become directly liable for unpaid PAYE and National Insurance contributions where an umbrella company in their supply chain fails to account for them correctly. Where no agency exists in the chain, the end-client bears the liability instead.
The scale of the problem
This is not a niche concern. According to the GOV.UK Tax Information and Impact Note (TIIN), approximately 30,000 recruitment agencies, 400 umbrella companies, and 700,000 umbrella workers fall within scope. The legislation is projected to protect £715 million in tax revenue in 2026-27 alone (GOV.UK TIIN, “Tackling non-compliance in the umbrella company market”).
What the legislation requires
Recruitment agencies should understand what this does and does not demand of them. The legislation does not prescribe a specific due diligence standard. There is no checklist published alongside the rules, and no single accreditation or certification is mandated. However, HMRC has made clear that it expects agencies to conduct regular, documented checks on their umbrella suppliers. Agencies that cannot demonstrate a reasonable process for verifying compliance may find themselves exposed.
One-off compliance costs for businesses are estimated at £9.9 million, with ongoing annual costs of £21.7 million (GOV.UK TIIN). For individual agencies, the cost of building a credible due diligence process will vary, but the cost of failing to do so could be significantly higher.
Part of a broader shift
Joint and several liability does not exist in isolation. The Employment Rights Act 2025 received Royal Assent in December (legislation.gov.uk), and the Fair Work Agency launches in April 2026 with a remit to enforce workers’ rights across the labour market. Separate umbrella sector regulation is expected to follow in 2027. The direction of travel is clear: the government intends to hold every party in the supply chain accountable.
Where FCSA stands
We have been calling for greater accountability in the umbrella sector for years. This legislation is a positive step, and we welcome it. FCSA accreditation already covers many of the compliance areas that agencies will now need to verify in their umbrella partners, including payroll processing, tax treatment, and contractual transparency. That makes working with an FCSA-accredited umbrella company a strong foundation for any due diligence framework, though we recognise that agencies will need to build processes that go beyond any single measure.
What agencies should do now
The compliance deadline is weeks away. Agencies that have not yet reviewed their umbrella supply chains should start immediately. Map your umbrella relationships, assess the evidence you hold, and identify gaps. The liability is real, it is imminent, and it falls on you.
For guidance on working with accredited umbrella companies, visit fcsa.org.uk.
