Changes to Umbrella Company Regulations

Changes to Umbrella Company Regulations

The 2024 Autumn Budget has promised significant reform targeting the umbrella company market, with changes proposed to begin in April 2026. The government aims to tackle what they claim as widespread lack of compliance to protect workers from exploitive practices. These practises may not be limited to tax, but also; the underlying rights of employers and the denial of worker protections. Understanding these reforms is essential for businesses in the contractor supply chain, not just umbrella companies, to ensure continued compliance and mitigate financial penalties, reputational damage and potential business registration issues.

Why Such Significant Reform?

The umbrella company sector has historically been linked with tax avoidance and what HMRC call ‘disguised remuneration’. HMRC has estimated that in the 2022/23 tax year, £500 million was lost in revenue due to tax avoidance within the umbrella market. The new legislation will seek to shift the responsibilities for PAYE obligations and National Insurance Contributions (NICs) to recruitment agencies when engaging with workers through Umbrella Companies. Presently, a role that lies within IR35 Regulations leaves the liability to deduct relevant tax with the ‘fee payer’. This is the entity that is in recipient of the funds immediately before the contractor. In some cases, this entity takes the form of an Umbrella Company. HMRC shifting the liability illustrates their desires for agencies to take more accountability for tax liabilities, rather than relying on the services of Umbrella Companies.  

The Key Changes

In advance of draft legislation being published, we cannot yet account for the definitive mechanism upon which the changes will take effect. Whilst our team will be updating our clients upon publication, for now we know that the government have three key intentions;

Shift in Tax Liability

From April 2026, it is intended that agencies will be accountable for tax deductions of workers engaged through umbrella companies. If there is no agency, this accountability will be held by the end client.

Definition of Umbrella Companies

The new government plans to legally define what an Umbrella Company is in the upcoming amendments to the Employment Rights Bill. This definition will provide some much-needed clarity as it is current legislation spares very little detail on what may constitute as an Umbrella Company and will allow for a clear differentiation between the often conflated umbrellas that are compliant and those that are not but continue to be referred to as umbrellas.  

Increase in HMRC Enquiries

HMRC have promised to increase their activity around umbrella arrangements. Less leniency will be offered and harsher penalties will be applied.

WTT’s View

There is little over a year before these changes come into effect and recruitment agencies must taking appropriate steps in preparation these reforms sooner rather than later. New arrangements with umbrella companies may need to be established or vetted and any further changes to legislation accounted for. Our multidisciplinary team at WTT offers a depth and breadth of expertise on umbrella frameworks and are very well placed to assist in coping with and benefitting from the changes to the legislation. Whether this is supply chain audits, due diligence guidance or compliance framework development, our team offers a bespoke service to cater for your needs and will make every effort to ensure you’re fully prepared to benefit from these upcoming changes.

If you have any queries in regards to the changes to Umbrella Company Regulations, get in touch with our experts today at info@wttconsulting.co.uk or call us on +44 (0)20 3468 0000, for more information.