Umbrella Companies: What to expect in 2026

This is a guest blog from REC business partner SafeRec.

Preparing for regulatory change in the Recruitment industry

The UK government has confirmed major changes to agencies’ liability when engaging umbrella companies, with new regulations set to take effect from April 2026. These changes will significantly impact recruitment agencies, shifting greater responsibility onto them to ensure compliance with tax.

While umbrella companies will remain a key part of the labour market, agencies will no longer be able to assume that compliance is solely the responsibility of the umbrella provider. Instead, agencies will need to take proactive steps to protect their business.

As we approach 2026, the key question for recruitment agencies is: are you prepared for these changes, or are you at risk?

What’s changing in 2026?

The UK government has outlined its plan to combat tax non-compliance in the umbrella company market, and one of the most significant reforms is the transfer of responsibility for Pay As You Earn (PAYE) and National Insurance Contributions (NICs) from umbrella companies to recruitment agencies.

Currently, recruitment agencies can outsource payroll responsibilities to umbrella companies. However, from April 2026, agencies that supply workers through an umbrella will carry the liability for any unpaid taxes if the umbrella company fails to meet its obligations. If no agency is involved, this responsibility will fall to the end client.

The government’s three main objectives are to:

• Reduce tax non-compliance and prevent losses from umbrella companies operating outside PAYE regulations.
• Ensure fair competition by eliminating non-compliant providers that undercut legitimate umbrella companies.
• Protect workers from financial risks caused by tax avoidance schemes.

The government estimates that these changes could safeguard £2.8 billion in tax revenue by 2029-30, underlining the scale of non-compliance that has been identified in the sector.

Recruitment agencies will still be able to work with umbrella companies, but only if they can demonstrate that their chosen providers are fully compliant. While final details will be confirmed in the draft legislation expected in spring/summer 2025, agencies should start preparing now to avoid potential financial and reputational risks.

What can recruitment agencies do now to stay ahead?

The impact of these changes will be significant, and agencies that wait until 2026 to act will already be behind. The most effective strategy is to begin implementing robust compliance measures now.

1. Strengthen your due diligence processes

 Recruitment agencies must take greater responsibility for vetting the umbrella companies they work with. Agencies must have clear, documented evidence of their due diligence processes and what has been checked.

To support agencies in meeting these new requirements, SafeRec now offers a free due diligence tool that allows any recruitment agency to conduct thorough checks on any umbrella company. This tool enables agencies to quickly assess whether an umbrella is operating compliantly, helping them avoid financial and reputational risks.

Best practices for due diligence include:

• Using SafeRec’s free due diligence tool to verify an umbrella company’s compliance status.
• Requesting and reviewing detailed compliance documents from umbrella companies.
• Auditing payslips and reconciliation statements to ensure accurate tax deductions and payments. If your agency lacks the expertise to carry out this level of forensic checking, SafeRec offers an automated forensic payslip audit tool that allows agencies to audit payslips with a simple drag-and-drop function.

Due diligence must be documented and repeatable—a one-off check is no longer enough.

2. Work with certified Umbrella companies

The safest approach is to partner only with independently certified umbrella companies that can provide verifiable proof of compliance.

• For instance, when an agency works with SafeRec Certified Umbrella Companies, you agency will have access at no cost to:
• Detailed 30-50 page due diligence reports, accessible via saferec.co.uk.
• Monthly audit reports confirming that all workers have had their payslips audited in real time and that taxes have been correctly deducted and paid to HMRC.
• Documentation that can be shared with end clients, ensuring transparency and compliance across the supply chain.

Working with SafeRec certified umbrella provide your agency with proof of compliance, ensuring that your agency is fully prepared for the 2026 regulatory shift.

3. Stay informed and engage with industry updates

The draft legislation, expected to be published between spring and summer 2025, will provide greater clarity on the specific compliance obligations for recruitment agencies. Agencies should:

• Regularly review updates from HMRC, the REC and SafeRec.
• Engage in consultations to help shape the final legislation.
• Take proactive steps rather than waiting for the final implementation.
• Understanding and anticipating these changes will help your agency stay ahead of the curve.

Final thoughts: The time to act is ow

The April 2026 reforms will introduce a new level of accountability for recruitment agencies working with umbrella companies. Ignoring these changes is not an option.

Key takeaways:

• Recruitment agencies will become responsible for PAYE and NIC compliance when using umbrella companies.
• Non-compliance will carry financial and reputational risks, with HMRC shifting liability onto agencies.
• Agencies must take control of compliance by conducting thorough due diligence and working only with trusted, certified umbrella providers.

The next 12 months provide a critical window for agencies to assess their current practices, update compliance procedures, and prepare for the changes ahead.

By taking action now, recruitment agencies can ensure they remain compliant, competitive, and protected in an evolving regulatory landscape.

​​​

Learn more about SafeRec