Umbrella Reforms 2026: Your Questions Answered

Do you feel ready for the Umbrella Reforms due to come into effect later this Spring?

Don’t worry, we’re here to help you feel more prepared!

You might have seen that last year we hosted a webinar with PayStream where our Recruitment Services Managing Director William Boney and Head of Operations & Organisational Change Anna Kramer sat down with the PayStream CEO Tony Hodkinson for an informative discussion all about the upcoming tax legislation changes and the Employment Rights Bill 2027.

These changes are set to have an impact on many umbrella companies and be felt across the whole recruitment industry, so we want to help you navigate this period of change.

Watch the Recording

As well as providing you with a link to watch the full recording to get you up to speed on discussion points such as:

• A clear overview of the tax legislation changes, including joint and several liability due in April 2026
• The impact of the Employment Rights Bill due in April 2027
• How this new legislation impacts you and how you can prepare for the change
• How you can protect yourself from liability and carry out appropriate due diligence, including insight into PaySteam’s own 6-Point Compliance Plan
• Exactly what we at Sanderson are doing to ensure compliance across the supply chain and to keep a smooth process for our clients and contractors

This blog will also provide an overview of key questions asked and answered in the informative Q&A session during the webinar. Scroll down to explore…

Umbrella Reforms FAQs

Could a client still be liable if they have not done due diligence on an agency?

Where there is a UK agency in the supply chain between the client and umbrella company, the agency and umbrella company are the ones liable if there is a tax liability. The client would not be jointly and severally liable in that scenario.

If an agency cannot pay a tax bill, does liability flow back up the contractual chain?

The legislation does not currently suggest that liability could flow up the chain if neither the umbrella or agency could pay the bill. However, we’re still waiting on official guidance and the legislation is only in draft format, it may of course change before it receives Royal Assent.

Could consulting companies who are acting like an MSP for a client be held liable under the Umbrella Reform legislation?

Yes, we believe that MSPs will be on the hook should any tax liability accrue in relation to a non-compliant umbrella company in the supply chain. “Umbrella company arrangements” are broadly defined in the draft legislation such as to include these types of contractual arrangements with the end client.

What steps are the FCSA are taking in regards to the Umbrella Reform legislation? And, if they find a member to be non-compliant could they reject their membership and be transparent to agencies?

The FCSA themselves will be best placed to answer this question in the most detail, but yes we do understand the FCSA to have robust policies in place to investigate members for alleged non-compliance with its compliance codes, and that can ultimately lead to suspension and even expulsion for serious breaches.

Do you see clients (or MSPs) simply banning the use of umbrella companies as a result of this legislation?

The Employment Rights Bill is adding more complexity and litigation risk to employers, causing a headache for many businesses. Where an end client engages with an agency that has a connected or in-house umbrella company, we perceive clients moving towards independent umbrella companies to ensure the joint and several risk falls on the umbrella company and the agency. We also perceive clients reducing and dictating the umbrella PSL to ensure only financially robust, compliant and trusted partners are engaged in the supply chain

Could all of this extra administration lead to higher umbrella fees?

Yes, we foresee that umbrella margins will be under more pressure. There will be additional cost for the umbrella in evidencing its compliance, such as third-party payslip checking software. However, it may hopefully level the playing field and increase volumes as non-compliant operators exit the market.

Why would agencies be liable before umbrella companies? What would this look like in practice, if, for example, a simple mistake is made by an umbrella company?

HMRC will consider what “relevant parties” there are in the supply chain. The umbrella and the agency that holds the contract with the client will be jointly and severally liable. If there is no agency, liability will sit with the umbrella and client. In a recent policy paper, HMRC said joint and several liability will allow them to pursue an agency in the first instances for any payroll taxes that a non-compliant umbrella company fails to remit to HMRC. If a compliant umbrella company has made an innocent error in their payroll taxes, it does seem more likely that HMRC will go directly to the umbrella company to resolve the issue. Official guidance may clarify this for us in the coming months.

Next Steps

Do you have any more questions in regards to the Umbrella Reform changes due to come into effect in a few months? Don’t hesitate to reach out to Will Boney to find out more.