Umbrella Reform: What Every Recruitment Agency Needs to Know Now

14 Oct

Since 6 April 2026, the rules have changed for every recruitment agency that works with umbrella companies. If an umbrella company in your supply chain fails to pay PAYE or National Insurance, HMRC can now come to you for it.

AGPayroll’s Chris Fahey joined Howard Greenwood of Jump Advisory Group for a masterclass on what this means in practice: the real cost of getting it wrong, what the Fair Work Agency is asking for when it visits, and what agencies should do before Christmas.

Here are the key takeaways.

The biggest change in over two decades

Chris has worked in the recruitment and payroll industry for 22 years. In his view, this is the most significant legislative change he has seen. The only comparison is the IR35 off-payroll reforms in 2021.

“Before, you could say the umbrella company is paying the contractors, so it’s up to them to pay the tax and prove it to HMRC,” Chris explained. “Now the shoe is on the other foot. If HMRC comes to the agency and says ‘prove to me these taxes have been paid’, the agency needs the audit file.”

This is Joint and Several Liability (JSL). It means the agency and the umbrella company share responsibility for any unpaid tax. Where more than one agency is involved, such as in a master vendor arrangement, the liability sits with the agency at the top of the chain, the one contracting with the end client.

What about contracts signed before April?

Liability follows the payment date, not the contract date. Any payment made to a worker after 6 April 2026, through a supply chain that includes an umbrella company, is covered, whenever the contract was signed.

The good news is that agencies can’t be held liable for payments made before April 2026. But Chris strongly recommends reviewing your contracts now. One of the first things the Fair Work Agency looks for is whether a contract reflects the Employment Rights Act, including day one rights such as statutory sick pay and paternity leave. Speak to a specialist employment lawyer to make sure yours are up to date.

What non-compliance could cost you

The numbers are significant. On an average salary of £50,000, the potential PAYE and National Insurance exposure is around £17,500 per worker, per year.

25 workers: around £437,500
50 workers: around £875,000

That’s before any additional fines. And remember, in most cases the agency will already have paid that money once, to the umbrella company.

There is currently no insurance product on the market that covers this liability. The protection comes from who you choose to work with, and the evidence you keep.

Accreditation: not a guarantee, but essential

FCSA and SafeRec are the two leading accreditations in the umbrella market. Neither guarantees compliance on its own. What they give you is something just as valuable: proof of due diligence.

AGPayroll is accredited by both. As part of its SafeRec accreditation, SafeRec checks every month that AGPayroll has paid all its PAYE, National Insurance and VAT. AGPayroll then shares that monthly report with its agency partners. FCSA goes a step further, with a portal that gives agencies and end clients real-time visibility of whether an accredited provider’s taxes have been paid.

“If the Fair Work Agency asks how you know your umbrella company is compliant, you can say ‘here’s the monthly compliance pack we get from them’,” Chris said. “That document and that portal are the proof.”

Chris also noted that FCSA is currently better known among end clients, particularly in master vendor arrangements, where many now ask for FCSA accreditation as standard.

What the Fair Work Agency is asking for

The Fair Work Agency is already visiting agency offices. Based on recent visits to agencies AGPayroll works with, these are the records it’s asking to see:

Key information documents, issued and agreed before the worker started the assignment
Payslips showing holiday pay
Holiday pay records
Due diligence on the umbrella companies you use
Terms for each worker and each client
Statutory sick pay and paternity pay records

“That’s the standard they expect every agency to have,” Chris said. “If you’re not doing it, take that on board now.”

The red flags of a non-compliant umbrella company

Chris highlighted the warning signs every agency should know:

The employer name keeps changing on payslips. This is the biggest giveaway of a mini umbrella scheme, where workers are moved between short-lived companies every few months.
The fees look too good to be true. A typical umbrella fee is around £20 to £25 a week. If a provider charges £5, or nothing at all, they are making their money elsewhere.
Promises of unusually high take-home pay. Take-home pay should be broadly the same across every compliant umbrella company. The only thing that should differ is the provider’s fee.
A recently formed company, or frequent changes of directors, on Companies House.
No compliance pack, or a refusal to show proof that tax has been paid.

On that last point, Chris was clear: “If an umbrella company is refusing to give you evidence that the tax has been paid, you move payroll companies. There’s too much at risk.”

A good compliance pack should include the worker’s contract of employment, the provider’s insurance documents, an example payslip and an example key information document. A compliant provider should be able to supply all of this at no cost.

Holiday pay: no more holding on to it

Some agencies and umbrella companies still retain unclaimed holiday pay and eventually treat it as profit. That era is ending. The Fair Work Agency is looking closely at holiday pay records, and agencies should expect any unpaid entitlement to come back to them.

At AGPayroll, most workers receive their holiday pay as they go. For those who choose to have it retained, FCSA and SafeRec audit AGPayroll every year to confirm all holiday pay has been paid out.