The government is making some important changes that will affect how recruitment agencies work with umbrella companies, and we’re here to help you understand what’s coming and how you can prepare. Starting in April 2026, the measures move the responsibility for Pay As You Earn (PAYE) and NI liability to the agency closest to the client in the supply chain. If there’s no agency in the chain, the responsibility will fall to the end client.
These changes are part of the government's ongoing efforts to clamp down on non-compliance in the sector that causes harm to workers, Treasury and compliant umbrella companies.
Check HMRC’s “Name and Shame” list
This list names companies that HMRC believe to be tax avoidance schemes, as well as those that promote, enable, or supply them. It’s clear that HMRC is taking this issue seriously, and as a recruitment agency, it’s essential to avoid working with companies that may find themselves on this list.
To help you stay on top of things, HMRC regularly updates this list, which you can access through the government website. Checking the list is another way to ensure you’re only partnering with trustworthy umbrella companies that won’t cause any unexpected headaches for you or your workers: https://www.gov.uk/government/publications/named-tax-avoidance-schemes-promoters-enablers-and-suppliers/current-list-of-named-tax-avoidance-schemes-promoters-enablers-and-suppliers#v-to-x
Don’t delay, start preparing now
April 2026 will be here before you know it, so now is the best time to start getting ready. The government has outlined clear guidance for agencies working with umbrella companies.
The key takeaway? Make sure the umbrella companies you choose to work with are fully compliant. By doing this, you’ll not only protect your business but also your contractors from any potential issues down the road.
We have already provided a ‘next steps’ guide for agencies with some recommendations that can be actioned now, including:
- Checking your supply chain
- Reviewing and consolidating your Preferred Suppliers List (PSL).
- Carrying out ongoing due diligence.
- Considering contractual indemnities and financial strength.
You can find a more in-depth analysis of our recommendations here: https://www.paystream.co.uk/blog/agency-info/umbrella-regulation-the-future-of-the-umbrella-company-landscape/
By taking these steps now, you’ll be ready for the changes in April 2026 and will be well on your way to maintaining smooth, compliant operations. At PayStream, we’re here to make this process as easy as possible for you. If you have any questions or need a helping hand, don’t hesitate to reach out to your Key Account Directors.
The 'nice' list (compliant umbrella companies you can trust!)
- Industry accreditations: they proudly showcase their accreditations from trusted industry bodies like FCSA, APSCo, and others. These companies are committed to high standards and best practices.
- Transparency with margins: a nice umbrella company is clear about their margins.
- Clear payslip reconciliation: they’ll provide a bespoke pay illustration, with all costs clearly laid out. And when it’s time to get paid, they’ll send a full invoice breakdown, including employer deductions, alongside your contractor’s payslip.
- Lawful payments: nice umbrella companies won’t make unlawful deductions from your contractor’s wage; they ensure compliance with statutory entitlements like National Minimum Wage, holiday pay, sick pay, and maternity/paternity pay. They understand these are your worker’s rights.
- Employment contract: they’ll provide your contractor with an employment contract and there won’t be any hidden fees for joining or leaving, or any minimum engagement periods. Just clear, honest terms.
- 24/7 online portal: a nice umbrella company will give your contractors access to an online portal where they can view their payslips and where necessary, submit their timesheets, ensuring they get paid on time, every time.
- Right to work in the UK: they’ll ask your contractor to provide evidence of their right to work in the UK, keeping everything above board.
- Pension & insurance: a compliant umbrella will offer an auto-enrolment pension scheme, and provide professional indemnity insurance, as well as employer and public liability insurance. They’ve got you covered!
The ‘naughty’ list (umbrella companies you should avoid!)
- Lack of accreditations: they avoid third-party scrutiny and have little to no industry accreditations. Don’t be fooled by an “HMRC Approved” claim – HMRC doesn’t provide such approvals to umbrella companies, or other businesses!
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Hidden margins: their margins may look low at first, but they have hidden tiered costs that increase depending on the size of the payment. A sneaky move that could end up costing more.
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Unclear payslip breakdown: naughty umbrella companies won’t provide a full breakdown of payment calculations. There could be hidden costs or extra deductions your contractor wasn’t expecting.
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Illegal deductions: they make deductions from the contractor’s earnings to cover statutory entitlements, which is illegal.
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Hidden fees: they may advertise a rock-bottom margin but then hit your contractors with hidden costs like fees for same-day payments, providing a reference, or even issuing a P45 at the end of the contract. Watch out for these sneaky fees!
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Loans or offshore arrangements: some of the naughtiest umbrella companies may involve loans or offshore arrangements. These are often linked to tax avoidance schemes and can land you in serious trouble with HMRC.
- Tax relief promises: be wary of any umbrella company promising tax relief on travel-to-work expenses. Umbrella employees are usually under supervision, direction and control which means many of these expense claims are likely to be ineligible.
By keeping an eye on these lists, you can make sure you're working with a compliant umbrella company that will keep things simple, transparent, and above board. Don’t settle for anything less than the ‘nice’ list - your contractors and your business will thank you for it! Call agency support on 0161 971 8979 or email agency_support@paystream.co.uk.
Related article - Umbrella regulation: the future of the umbrella company landscape
This collaboration was an important factor in leading HMRC to acknowledge, from the consultation responses and its own compliance activities, that compliant umbrella companies have a positive role to play in the temporary labour market going forward.
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