Joint and Several Liability for Umbrella Company PAYE Debt
Not using Frontline Recruitment? It’s time to ask the right questions!
From April 2026, the government is introducing new tax rules that change who HMRC can pursue if an umbrella company in a labour supply chain does not pay the correct PAYE income tax (and, in practice, National Insurance as well).
Under the new rules labour providers will often become jointly and severally liable for unpaid PAYE where an umbrella is used. In some situations, the end client (the organisation where the worker actually does the work) can also be liable.
“Joint and several liability” means HMRC can recover the full amount of unpaid tax from any one of the liable parties, regardless of who caused the non-compliance.
WHAT IS AN UMBRELLA COMPANY?
An umbrella company employs a worker and operates PAYE payroll on their behalf. The worker is typically recruited by a labour provider and referred to the umbrella, which then supplies the worker back into the labour supply chain, either via the labour provider or directly to the end client.
WHY ARE UMBRELLA COMPANIES USED?
Labour providers and clients use umbrella companies because they can:
- Handle PAYE payroll, tax, National Insurance, and statutory payments
- Avoid the risks inherent in employment relationships with workers – umbrella companies usually employ workers on a contract of employment
- Provide an employment framework for workers on short-term or variable assignments
- Reduce administrative complexity for labour providers and end clients
In some cases, individual contractors may choose to use an umbrella company themselves, in order to avoid the complications and administration of self employment.
When used compliantly, umbrellas companies can be a legitimate and established part of the labour market.
WHAT PROBLEM IS THE GOVERNMENT TRYING TO FIX?
HMRC estimates that umbrella companies were used to engage at least 700,000 workers in 2022-23, with at least 275,000 of those workers engaged at some point by umbrella companies that did not comply with their tax obligations.
In the same year, around £500 million was lost to disguised remuneration tax avoidance schemes, almost all facilitated through umbrella companies, with hundreds of millions more lost to “mini umbrella company” fraud and other abuses, often leaving workers facing large and unexpected tax bills.
Some umbrella companies have been used to:
- Underpay tax and National Insurance
- Inflate “take-home pay” using disguised remuneration schemes
- Make unexplained deductions from workers’ pay
- Collapse and disappear, leaving unpaid tax behind
Historically, HMRC has struggled to recover unpaid tax where umbrellas has no assets or no longer existed.
To address this, from April 2026, liability will sit with the labour providers with the contractual relationship with the end client, or where no labour provider is involved, to the end client.
The policy intention is clear: organisations that choose and benefit from the use of umbrella companies must share responsibility for ensuring it is compliant.
To discuss how Frontline Recruitment can support your business with an ethical PAYE payroll system (no umbrella), please contact David Essam at davidessam@frontlinerecruitment.co.uk.
Source: ALP – This Brief has been produced for ALP members for information only and is not exhaustive nor a substitute for legal advice. ALP and it’s advisors exclude liability for any claim or loss alleged to have arisen from or in connection with with the use of the information included within.