Important Compliance Update: Use of Umbrella Models
We’ve had a few queries of late from agencies regarding the upcoming legislation changes so we wanted to bring to your attention some key developments in the Draft Finance Bill and wider umbrella legislation that may significantly impact agencies working with umbrella and payroll intermediaries. We appreciate that this is a complex area, and our aim is not to alarm, but to ensure that you are fully aware of the risks so that appropriate steps can be taken to protect your business, directors, and clients.
1. Criminal Liability for Failure to Register (SRNs, DOTAS, “Stop Notices”)
The legislation strengthens HMRC’s ability to take action where tax avoidance schemes are suspected.
If a scheme is not disclosed properly, this can now give rise to criminal liability. Importantly, responsibility may extend to senior individuals (directors/managers), not just the company.
While there is a “reasonable excuse” defence, HMRC’s direction of travel suggests heightened scrutiny of umbrella and mini‑umbrella models.
2. Wider Classification as a “Tax Agent”
The Bill significantly broadens who may be treated as a “tax agent”, which can now include agencies engaging with umbrella or intermediary structures.
Where HMRC concludes there has been “deliberate conduct” leading to a potential tax loss, penalties can be severe (70–100% of tax at risk, rising further for repeat issues).
HMRC also has powers to publicly name organisations it views as facilitators of avoidance – something that could cause reputational difficulties with clients.
3. Joint and Several Liability for PAYE
The new Chapter 11 of ITEPA 2003 introduces joint responsibility across the labour supply chain.
This means that if an umbrella fails to account properly for PAYE, HMRC can legally pursue the agency, end client, or any other parties in the chain for the unpaid tax.
This removes the historical “buffer” that some agencies relied upon, making supply chain due diligence absolutely critical.
4. Increased Information & Anti‑Avoidance Powers
HMRC can now request information from any “connected person” (including directors, employees, agencies, accountants).
Non‑compliance with these requests carries both civil and criminal sanctions, and penalties can escalate quickly.
The definition of a “connected person” is very wide, so agencies need to be prepared.
5. Context on Mini Umbrella Companies
HMRC has already made clear in its guidance that mini umbrella arrangements are regarded as high‑risk and often non‑compliant.
Continuing to engage with MUCs could expose your business not only to unexpected tax bills, but also regulatory and reputational risks.
Recommended Next Steps
To safeguard your position:
Review current supply chain arrangements immediately to identify any exposure to mini umbrella structures.
Undertake due diligence on payroll providers and umbrella companies – ensuring they are accredited and fully PAYE compliant.
Consider proactive disclosure or advice if you believe there may have been historic exposure.
Educate clients and internal teams on the risks, so that everyone understands the new joint liability provisions.
We know many agencies have historically engaged umbrella models in good faith, without full visibility of how those models operated. The new legislation significantly raises the stakes, but with the right steps taken now, you can protect both your agency and your leadership team from future liability.
Our strong recommendation is to move away from mini umbrella arrangements and ensure that any umbrella or payroll providers you use are fully transparent, PAYE‑compliant, and operating within HMRC’s guidance.
We’d be happy to support further with compliance reviews, best‑practice supply chain checks, or communications to end‑clients regarding the changes.
