Umbrella Reforms FAQs

The changes ahead and how to prepare

What is the tax legislation?

The legislation means the agency closest to the end client will be responsible for any unpaid tax in the supply chain, should it occur.

A joint and several liability (JSL) approach will apply on a strict liability basis. In simple terms, this means responsibility can sit with more than one party, and businesses can be held liable regardless of intent or awareness. If there’s no agency in the chain, liability moves to the end client.

What is Joint and Several (JSL)?

JSL allows HMRC to recover unpaid tax from either the umbrella company or the agency/end client. Once the liability is settled by one party, the other is no longer responsible.

Because this is based on strict liability, there’s no defence in saying you weren’t aware of non-compliance. That’s why choosing trusted, compliant partners is more important than ever.

How will JSL be enforced?

A new chapter within the Income Tax (Employment & Pensions) Act 2003 (ITEPA), alongside existing Social Security legislation, gives HMRC the authority to pursue PAYE and National Insurance liabilities from:

• the umbrella company
• the agency holding the contract with the end client (typically the top-tier agency or MSP)

What steps should an agency take to ensure compliance?

The most effective approach is to focus on strengthening your supply chain and compliance processes:

• review and map your full supply chain
• regularly assess and update due diligence procedures
• consolidate your Preferred Supplier List (PSL) to trusted, financially stable umbrella companies
• ensure only PSL-approved umbrella companies are used
• review contractual indemnities alongside the financial strength of your partners
• build a clear understanding of where liability may sit

Understanding liability

Who is liable under JSL?

In most cases, liability will sit with both the umbrella company and the agency that holds the contract with the end client. However, there are nuances depending on how the supply chain is structured.

Could MSPs be affected?

Yes. Managed Service Providers (MSPs) are likely to fall within scope where they are part of the contractual chain supplying workers.

The legislation defines “umbrella company arrangements” broadly, meaning MSP models are unlikely to be excluded.

Does this affect agency PAYE?

In most cases, agency PAYE will continue to be governed by existing rules under chapter 7 of ITEPA.

However, where non-compliance occurs, HMRC may apply the new rules as a fallback. This brings JSL into play, reinforcing the importance of working with compliant partners throughout the chain.

Risks and how to manage them

How much protection does a contractual indemnity offer?

A contractual indemnity is only as strong as the umbrella company behind it.

To properly assess risk, agencies should look for:

• a profitable business with a strong balance sheet
• positive working capital
• low levels of borrowing
• a solid net asset position

Independent credit checks and reviewing filed accounts are good starting points.

How can agencies ensure compliance in real-time?

Saying you’re compliant isn’t enough. Transparency and verification matter.

At Focused, we take this seriously. We use external payslip verification software to give agencies clear, ongoing visibility.

This includes:

• real-time payslip auditing
• monthly reporting
• confirmation of PAYE and NI remittances to HMRC

It means agencies don’t have to chase or second-guess, they can trust that everything is being handled properly.

The future of umbrella employment

What are benefits for contractors in using an umbrella company, as opposed to agency PAYE?

For contractors, the advantages of working with a compliant umbrella company remain unchanged:

• full employment rights
• continuity across assignments
• access to employee benefits and rewards
• the ability to contribute to a personal pension through salary sacrifice

Just as importantly, everything is handled for you, payroll, tax, pensions, so you can focus on your contract with complete peace of mind.

Will umbrella companies continue to give workers full employment rights?

Yes. The legislation makes it clear that treating someone as employed for tax purposes still brings them within scope.

This means attempts to remove employment rights won’t avoid these rules. Non-compliant models are being closed off, not encouraged.

Will clients / MSPs stop using umbrella companies?

That’s unlikely.

Managing payroll, tax and employment responsibilities is complex and time-consuming. With increasing regulation from the likes of the Employment Rights Act, risk is also increasing. This is why most clients and agencies will continue to rely on umbrella companies, but they’ll be more selective.

Following the introduction of the legislation in April 2026 we’ve seen:

• smaller, more carefully vetted PSLs
• a shift towards independent, compliant umbrella companies
• greater focus on financial stability and transparency