Are Your Contractors using Umbrella Companies? 2026 Regulation Changes You Should Know About

From 6 April 2026, new PAYE rules will fundamentally shift responsibility within labour supply chains, placing agencies and end clients firmly in the compliance spotlight.

If your business uses umbrella companies to supply workers or if you're an agency operating in this space, here's what you need to know and how Owen Daniels can help you navigate these changes.

Understanding the New Regulatory Landscape

The government's objective is to tackle non-compliance in the umbrella company market and protect workers from exploitation. The new regulations introduce a joint and several liability framework that changes who holds responsibility when umbrella companies fail to meet their PAYE obligations.

What Changes from April 2026?

Liability Shift

If an umbrella company fails to operate PAYE correctly, HMRC will now recover unpaid taxes from the agency that supplied the worker. Where no agency is involved, this responsibility falls directly to the end client.

Who This Affects

• Recruitment agencies with contracts to supply workers through umbrella companies
• End clients who engage workers via umbrella companies without an intermediary agency
• New and existing labour supply arrangements
• All payments made to workers from 6 April 2026 onwards

Why This Matters for Your Business

Financial Risk

If HMRC identifies PAYE non-compliance within an umbrella company you've used, your business could face:

• Recovery of all unpaid PAYE Income Tax Recovery of all unpaid PAYE Income Tax
• Outstanding National Insurance contributions(both employee and employer
• Unpaid student loan repayments
• Potential penalties and interest

For businesses working with multiple contractors across various projects, these liabilities could accumulate rapidly.

Reputational Risk

Association with non-compliant umbrella companies can damage your reputation. In an increasingly transparent market, businesses are judged not just on their own practices but on those of their entire supply chain.

Operational Complexity

The new rules introduce additional administrative requirements. You'll need robust systems to:

• Conduct thorough due diligence on umbrella providers
• Monitor ongoing compliance
• Maintain comprehensive records
• Respond promptly to any compliance issues

Five Critical Steps to Take Now

1. Audit Your Current Supply Chain

• Map out every element of your labour supply chain.
• Identify all umbrella companies currently being used and document the agencies involved.

2. Review Your Contracts

• Examine existing contracts with agencies and umbrella providers.
  • Do they include adequate compliance clauses?
  • Are responsibilities clearly defined?

3. Implement Due Diligence Processes

Develop robust procedures for vetting umbrella companies. This should include:

• Verification of HMRC registration
• Review of insurance coverage
• Assessment of compliance history
• Regular monitoring of PAYE operations

4. Consider Alternative Solutions

Options include:

• Direct engagement through compliant payroll services
• Partnering with recruitment agencies that manage compliance end-to-end
• Embedded recruitment solutions that integrate seamlessly with your HR function

5. Engage Expert Support

Partner with specialists who understand both the regulatory landscape and your sector's specific requirements.

Owen Daniels: Payroll&Compliance Solutions

Our Contractor Services are designed to simplify contingent workforce management while ensuring full compliance with every regulatory requirement. Whether you're engaging a single specialist or managing a large-scale contractor workforce, we provide the expertise, structure, and support to keep your business running smoothly.

We offer:

End-to-End Contractor Compliance

From onboarding and right-to-work checks to IR35 assessments and payroll management, we handle every aspect of contractor compliance, eliminating administrative burden and mitigating risk.

Flexible Engagement Models

We offer fully managed solutions for contract, temporary, and project-based workers, ensuring seamless integration with your existing HR and procurement processes.

Embedded Contractor Management

Our experts can operate as part of your internal team, managing your contractor population directly within your organisation while maintaining strict regulatory oversight.

Global Contractor Solutions

Access top technical and engineering talent across international markets through compliant engagement models that protect your business and contractors alike.

Ready to Prepare for 2026? 

With less than 18 months until the new regulations take effect, businesses need to act now. The steps you take today will determine whether April 2026 represents a compliance crisis or a smooth transition.

If you're concerned about how the 2026 umbrella company regulations will affect your business, or if you're ready to explore compliant alternatives for accessing STEM talent, we're here to help.

Contact Owen Daniels today to discuss how our Contractor solutions can protect your organisation whilst ensuring you maintain access to the STEM talent you need to succeed.