In brief. From 6 April 2026 an employment business that supplies a worker employed by an umbrella company is jointly and severally liable with that umbrella for the PAYE income tax and National Insurance due on the worker's pay. The rule applies to money paid to workers on or after 6 April 2026, to new and existing supply chains, and to the agency that holds the contract with the end client (or to the client where there is no agency). HMRC can recover an umbrella's unpaid PAYE from the agency first. Regulation of umbrella companies as employment businesses follows in 2027 under the Employment Rights Act 2025. The agency's protection is due diligence it can show, a short supply chain and a Key Information Document it issues itself.
Updated 7 October 2026. Rewritten with the question first and a government source for every fact; HMRC's guidance confirms the rules are in force. Previously updated 28 July 2026.
Key facts, each with its source
- The liability. A new Chapter 11 in Part 2 of the Income Tax (Earnings and Pensions) Act 2003 makes the agency or end client jointly and severally liable for any amount the umbrella must account for under PAYE on a qualifying umbrella company payment. It does not matter which party pays or how much each pays, as long as the amount is paid in full (HMRC, PAYE changes for the umbrella company market, and Employment Status Manual ESM2420).
- Who it reaches. The agency that has the contract with the end client; the end client if there is no agency; the umbrella company. New and existing chains. Money paid on or after 6 April 2026 (HMRC, PAYE rules for labour supply chains that include umbrella companies from 6 April 2026, updated 19 June 2026 "because it is now in force").
- What is outside it. Workers paid through their own personal service company where the off-payroll conditions are met, managed service companies, salaried members of an LLP, and workers treated as employed by the agency itself, each under its own rules; HMRC warns that a purported umbrella can still be caught (the same HMRC page, and ESM2440).
- The standing duties. The quarterly employment intermediaries return for workers the agency does not pay through its own PAYE; operating PAYE itself where the umbrella is offshore with no UK presence; the VAT self-billing rules; tax on incentives, including payment for a place on a preferred supplier list; checking that the umbrella does and records right to work checks; the Bribery Act on gifts (HMRC, Responsibilities for employment businesses working with umbrella companies).
- The Key Information Document. Issued by the agency when a worker first registers and before any work-finding service, reissued on significant change, naming the umbrella, never delegated to it (the same HMRC page, and regulation 13A of the Conduct of Employment Agencies and Employment Businesses Regulations 2003).
- What is coming. "Regulation of umbrella companies" sits in the government's timetable for 2027, bringing umbrellas within the definition of an employment business so the Fair Work Agency can enforce against them (Plan to Make Work Pay and Employment Rights Act, timeline update, gov.uk, updated 25 September 2026).
What the rule means on a temp desk
Until April 2026 an agency that chose a compliant-looking umbrella and moved on carried a reputational risk and little else. Now the tax debt of a non-compliant umbrella is the agency's debt too, and HMRC says plainly that it will pursue the agency in the first instance. The umbrella remains the employer for employment rights and remains liable; the change is that the agency stands beside it for the PAYE.
Three things follow. The agency should know every entity in each chain and keep the chain as short as it can. The agency should be able to show, from its own records, that it checked the umbrella before the first placement and at sensible intervals after it. And the agency's margin on an umbrella placement should be priced for the risk it now carries.
The due diligence HMRC expects, as a checklist
HMRC's guidance for employment businesses lists the checks and says they should be regular, reasonable and proportionate, and recorded. Before the first placement, and then on a cycle the agency sets and keeps to, confirm the umbrella is VAT registered and charging VAT, and that its Companies House details match what it has given you. Find out whether it outsources its employer duties to a third party, and check that party too. Obtain a payslip and a reconciliation statement from the worker and check that the assignment rate you paid matches, that PAYE is being operated, and that there are no unexplained deductions. Check that the bank account name matches the umbrella's name, that it holds employers' liability insurance, that any accreditation it claims is real, and that it holds a Gangmasters and Labour Abuse Authority licence where the sector needs one. Watch for the signs of mini umbrella company fraud, a changing employer name on payslips, a changing PAYE reference, Key Information Documents that have to be reissued because the umbrella keeps changing. If a worker asks for a particular umbrella because it promises more take-home pay, treat that as a warning, not a preference.
What goes in the file
For every umbrella the agency uses, one folder. The checks above with dates and the name of the person who did them. The umbrella's written answers to the questions the Key Information Document needs. The Key Information Document the agency issued, with its reissue dates. The contract between the agency and the umbrella. Copies of the worker's first payslip and reconciliation statement. A note of any concern raised and what was done. A file like this is what an HMRC officer, a client's procurement team or a tender questionnaire asks for, and it is the agency's evidence that it took reasonable steps.
What has not changed
The Agency Workers Regulations 2010 still apply to umbrella-employed workers after twelve weeks on the same assignment. The Conduct Regulations still bind the agency as an employment business, including the Key Information Document. The off-payroll rules still govern workers who use their own limited company, and the agency's position as fee-payer under a status determination is unchanged. Holiday pay, minimum wage and the written statement remain the umbrella's duties as the employer, and the Fair Work Agency's reach into holiday pay from 2027 will touch umbrellas as employers.
Questions people ask
Is an agency liable if the umbrella goes bust owing PAYE?
Yes, for money paid to workers on or after 6 April 2026. The agency with the client contract is jointly and severally liable for the PAYE the umbrella failed to account for, and HMRC may pursue the agency first. Source, HMRC's PAYE rules page for labour supply chains that include umbrella companies.
Does the rule apply to contracts signed before April 2026?
Yes. HMRC's guidance says the rules apply to new and existing labour supply chains. What matters is the date the worker is paid, not the date the contract was signed.
Can the umbrella issue the Key Information Document for us?
No. Some umbrellas prepare one, but the agency must issue it when the worker first registers and reissue it on significant change; the duty cannot be deferred to a third party. Source, HMRC's responsibilities page for employment businesses and regulation 13A of the Conduct Regulations 2003.
Will umbrella companies be regulated?
The government's timetable lists regulation of umbrella companies among the measures for 2027, bringing them within the definition of an employment business so the Fair Work Agency can enforce against them. The date will be set by regulations.
What is the one check that matters most?
The worker's own payslip and reconciliation statement, read against the assignment rate the agency paid. It shows in one page whether PAYE is being operated and whether anything is being skimmed.
Sources
HM Revenue and Customs, PAYE rules for labour supply chains that include umbrella companies from 6 April 2026 (gov.uk, updated 19 June 2026). HM Revenue and Customs, Responsibilities for employment businesses working with umbrella companies (gov.uk, updated 17 September 2025). HM Revenue and Customs, PAYE changes for the umbrella company market (gov.uk policy paper, with the Employment Status Manual at ESM2420 and ESM2440). The Conduct of Employment Agencies and Employment Businesses Regulations 2003, regulation 13A (legislation.gov.uk). Plan to Make Work Pay and Employment Rights Act, timeline update (gov.uk, updated 25 September 2026).
This guide is general information, not legal advice. Members should have their own arrangements checked by their own solicitor or accountant before relying on them, and BIOR accepts no responsibility for any loss arising from their use.
For members
BIOR Agency Members have the IR35 and Off-Payroll Working guide, the PSC and Limited Company Contractor Terms 2026 and the Key Information Document template in their library, and Ask BIOR for the question their umbrella cannot answer. The Key Information Document guide and the 12-point compliance health check sit beside this page on the hub. BIOR membership includes the certification assessment. Pass it and you are certified for five years. See Agency Membership. Check any recruiter at ior.org/certified.
Written by The BIOR Membership Team. Last reviewed 7 October 2026 against gov.uk and legislation.gov.uk.