Key takeaways
New tax rules for umbrella companies
Shared liability approach replaces current IR35 model.
Liability extends across the supply chain
Agencies and clients may share PAYE responsibility.
Draft legislation starts April 2026
Businesses should prepare for compliance now.
The Government has committed to legislate to tackle non-compliance in the umbrella company market. Umbrella companies legally ‘employ’ individuals and then supply them to work for end clients. To combat what it considers to be widespread non-compliance by umbrella companies, the government intends to regulate their conduct and tax position. This article considers the recently published draft legislation, which aims to regulate the tax position of umbrella companies.
From April 2026, umbrella companies will be subject to new tax laws where they employ an individual (worker) who either personally provides services, or enters arrangements with a view to personally providing services, to another person (client). The worker supply chain may include one or more intermediaries.
Unlike the current off-payroll working rules (IR35), which operate on a ‘deemed employment’ model, this new regime for umbrella companies will be based on a shared tax liability approach. This allows liability for operating PAYE and accounting for tax to be shared jointly and severally with other entities in the worker supply chain. The new rules will work as follows:
If there is a single UK agency in the supply chain: the UK agency will have joint and several liability with the umbrella company for operating PAYE and accounting for tax;
Where there is more than one UK agency in the supply chain: the UK agency that has directly contracted with the client (i.e. the nearest UK agency link in the worker supply chain to the client) will have joint and several liability with the umbrella company for operating PAYE and accounting for tax; or
If there is no UK agency in the supply chain (or if the UK agency is connected to the umbrella company): provided it is resident in the UK, the client will have joint and several liability with the umbrella company for operating PAYE and accounting for tax.
The draft legislation remains subject to change. We will report any developments in due course.
