The Government’s draft legislation has been a hot topic in recent weeks. The consultation period has now closed, and HMRC published further guidance on umbrella company tax legislation.
This shows that policymakers are listening to stakeholders and remain committed to reform. Final legislation is expected before the end of the year.
The changes create a new chapter in Income Tax (Employment & Pensions) Act 2003, allowing HMRC to recover unpaid PAYE and NI not only from the umbrella company but also from the top-tier agency (or Managed Service Provider). Where no agency exists, liability falls to the end client. Importantly, this is a strict liability offence, meaning you won’t be excused!
Key questions we’ve been asked:
Is agency PAYE caught by the draft legislation?
Generally, no. Agency PAYE remains covered by Chapter 7, which already requires agencies to treat workers as employees for tax purposes. But if non-compliance occurs, HMRC can now use Chapter 11 as a fallback, which is useful due to the inclusion of JSL.
Do indemnities offer enough protection?
Only if the umbrella company is financially stable. Agencies should review accounts, credit checks, and balance sheets to confirm strength before relying on indemnities. Ideally you want your umbrella company to be profitable and not vulnerable to interest rate changes so you also want to look out for how much they’re borrowing.
How can agencies mitigate risk without seeing PAYE/NI paid?
Work only with trusted umbrellas. At Focused, our 5- point plan is at the heart of how we work with agencies. It’s built to give you confidence in our compliance, reassurance in our strength, and trust in the way we do business. Including:
- FCSA accreditation
Proof that we meet the highest standards of compliance and transparency. - Independent payroll audits
Our payroll processes are independently reviewed by a Big 4 accounting firm. - Financial strength & protection
We’re open about our financial position so you can see we’re strong and secure. And with a contractual indemnity in place, you’re protected, no matter what. - Monthly evidence packs
Our monthly evidence packs confirm the PAYE and NIC payments made to HMRC, so you’ll never be left wondering where you stand. - Payslip verification
Every payslip is verified by an independent third party, providing real-time payslip and RTI auditing, plus HMRC remittance confirmation, giving you total peace of mind.
Will MSPs be affected?
Yes. If an MSP is part of the supply chain, we believe JSL means they could be liable for unpaid tax, if it occurs.
Preparing for April 2026
Agencies should begin preparing now by:
• Mapping supply chains
• Tightening due diligence
• Reducing PSLs to trusted, financially strong partners
• Reviewing indemnities alongside financial strength
By acting early, agencies can safeguard their supply chains and avoid unpleasant surprises when the rules take effect. We know legislation is changing fast and we’re here to help make the process as smooth as possible. If you have questions or want support, just reach out to the team at client.support@focusedgroup.co.uk or get in touch with your Account Manager.
Related article: Draft Tax Legislation: the details
After a long wait, the Government has finally published draft tax legislation aimed at alleviating non-compliance in the umbrella company market. These measures, outlined in the Finance Bill 2026, represent an important first step toward regulation of this part of the temporary labour market.