If you work through an umbrella company, or your business hires temporary workers through one, the rules changed on 6 April 2026 and are already in force. They target a real problem: government figures put £500 million lost to disguised remuneration schemes in a single year, almost all run through non-compliant umbrellas, and of around 700,000 umbrella workers, at least 275,000 were with an umbrella that failed to meet its tax obligations.
The reform is designed to protect workers, not punish them. But it also creates a serious new risk for the agencies and businesses that engage umbrella labour. Here is what actually changed, how workers can read their payslips for warning signs, and what hirers now need to check.
In a nutshell
- An umbrella company employs you and supplies your labour. Your pay comes out of an assignment rate, after employment costs.
- The change is joint liability, from 6 April 2026. Not a transfer of running the payroll.
- The agency or end client now shares the risk. HMRC can pursue them for the umbrella's unpaid tax.
- Workers should read their payslips. To catch skimming and scheme warning signs.
- Agencies and end clients have real exposure. Due diligence helps but does not remove liability.
- Umbrella, limited or sole trader is a judgement call. Weigh it with proper advice.
1. What an umbrella company actually is
An umbrella company is a business that employs workers on behalf of a recruitment agency or an end client and supplies their labour under a contract of employment. If you contract through an agency in construction, care, logistics or warehousing, there is a good chance you are paid this way.
The key concept is the assignment rate. This is what the agency pays the umbrella for your work, and it is not the same as your pay. Legitimate employment costs come out of it first: employer's National Insurance, the Apprenticeship Levy, employer pension, holiday pay and the umbrella's own margin. So your gross pay is lower than the assignment rate, and that is normal. HMRC's own example shows a £25 an hour assignment rate producing gross pay of £18.89 an hour once those costs are covered. The problem is not the deduction itself, it is when it is hidden or money is quietly skimmed.
2. What changed on 6 April 2026
Here is the part that is widely misreported, so let us be precise. The change is not that agencies or end clients must now run the umbrella's payroll. The umbrella company keeps the primary duty to operate PAYE and pay HMRC.
What changed is joint and several liability. From 6 April 2026, if an umbrella company fails to pay over the PAYE income tax and Class 1 National Insurance due on a worker's pay, another party in the labour supply chain is jointly and severally liable for that shortfall. In plain terms, HMRC can pursue that other party for the full unpaid amount, and does not have to chase the umbrella first. The measure was legislated in the Finance Bill 2025-26, through a new Chapter 11 of the Income Tax (Earnings and Pensions) Act 2003, with equivalent National Insurance rules.
3. Who now carries the liability
The liability lands on the recruitment agency that holds the contract with the end client, the top agency in the chain. Where there is no UK agency, or the top agency is offshore or connected to the umbrella, it falls on the end client instead.
That is a significant shift. A business that simply wanted temporary staff, and used an agency and umbrella in good faith, can now be pursued by HMRC for tax a completely separate company failed to pay. HMRC expects the measure to protect around £2.8 billion by 2029 to 2030, which tells you how hard it intends to enforce it. It is not aimed at the individual worker: HMRC pursues the umbrella and the jointly liable business, not the person on the payslip, for the umbrella's unpaid PAYE.
4. Workers: how to read your payslip
For workers, the risk is less about HMRC chasing you and more about a dodgy umbrella quietly reducing your take-home pay or dragging you into a scheme. Read your payslip and be wary of these warning signs, which HMRC itself lists:
- Extra money arriving in your bank account that does not appear on your payslip.
- Payments described as loans, annuities, bonuses, profit shares, credit facilities, capital payments or advances.
- Any claim that part of your income is "not taxable".
- Umbrella fees that are roughly the same size as the tax and National Insurance you should be paying.
- Deductions grouped together so you cannot see what they are.
- A promise of a fixed take-home percentage, such as 78 to 85 per cent.
HMRC provides a free online tool, "Work out pay from an umbrella company", that estimates your expected gross and net pay from the assignment rate so you can compare it against your payslip. If the numbers do not line up, that is worth investigating.
5. Agencies and end clients: your new exposure
If your business engages workers through agencies and umbrellas, you now have skin in the game whether you like it or not. HMRC expects you to map your labour supply chains, vet the umbrellas involved, and carry out ongoing due diligence.
Be clear on one point, though: doing the due diligence does not, by itself, remove the liability. It reduces your risk and is strongly expected, but a tidy checklist is not a legal shield. If an umbrella in your chain does not pay its PAYE, you can still be pursued. The practical response is to know exactly who is in your supply chain, favour umbrellas you can stand behind, and take advice on the contracts and checks that genuinely lower your exposure.
Note that this is a tax change. A separate reform under the Employment Rights Act 2025 will regulate umbrella companies as employment businesses, but that sits on a later timeline, widely expected around April 2027, and should not be confused with this April 2026 tax measure.
6. Umbrella, limited or sole trader
A common reaction is to ask whether leaving the umbrella and going limited or sole trader avoids all this. Sometimes a different structure is genuinely better, but it is not a simple tax escape, and it is easy to get wrong.
If the engagement falls inside the off-payroll working rules (IR35), running your own limited company does not avoid PAYE-style treatment. And a genuine employment relationship cannot simply be relabelled as self-employment: that is false self-employment, and many agencies and clients will not engage sole traders because of the liability. The right answer depends on your contracts, your sector and how you actually work, which is worth taking advice on rather than guessing.
A worked example: Piotr on a building site
Piotr works on site through an agency, which pays an umbrella an assignment rate of £25 an hour. After the umbrella funds employer's National Insurance, the Apprenticeship Levy, holiday pay and its margin, his gross pay works out at about £18.89 an hour, which is then taxed under PAYE. That gap is legitimate.
What Piotr should watch for is a payslip that does not add up: part of his money arriving separately and untaxed, a "loan" he did not ask for, or a promised take-home percentage that looks too good. Under the new rules, if that umbrella were skimming or failing to pay HMRC, the agency that placed him could be pursued for the shortfall. Piotr's job is to check his payslip and flag anything odd early, before a small problem becomes a big one.
Things to watch out for
- Joint liability, not a payroll transfer. The umbrella still runs PAYE; the agency or client is liable if it fails to pay.
- A lower gross than the assignment rate is normal. Legitimate employment costs come out first.
- Fixed take-home promises are a red flag. Compliant PAYE does not work that way.
- Due diligence is expected but not a shield. It lowers risk without removing liability.
- Do not confuse this with umbrella employment regulation. That is a separate reform on a later timeline.
How Ollen Services Can Help
Whether you are a worker who wants to know your payslip is honest, or a business worried about your labour supply chain, this is exactly the kind of thing we untangle. We review umbrella payslips for signs of skimming or non-compliance, help agencies and end clients reduce their new exposure, and advise honestly on whether an umbrella, a limited company or sole trader status is right for you.
Because so many of our clients work in construction, care and logistics, the sectors this reform targets, we deal with it every week, in English and Polish.
Call us on 07513 491 259 or email hello@ollenservices.co.uk. If umbrella pay is part of your working life, a quick check now can save a lot of trouble later.