11 March 2025
The Government has an ongoing commitment to stop non-compliance in the umbrella company market, such actions diminish workers’ rights, impact legitimate businesses and reduce tax receipts.
In a new consultation response, HM Treasury has announced the next steps to be taken and their hopeful implementation dates.
The core of the response is two actions:
- Define umbrella companies within legislation, bringing them into the scope of the Employment Agency Standards Inspectorate (and the Fair Work Agency, once established)
- Move the responsibility for PAYE from the umbrella company that employers a worker to the recruitment agency that supplies the worker to the end client. If there is no recruitment company, the responsibility rests with the end client.
These legislative changes have the scope to shake up the labour supply market significantly but will put the onus on businesses to ensure PAYE is being operated compliantly. This is not to say they must be the ones to administer the PAYE scheme, as always, employers could outsource this, even to the umbrella company. However, they must do their own due diligence in ensuring the supply chain does not involve any non-compliant practices, or they could face the fines.
Of the options presented in the original consultation, this was seen as the most extreme, however, the responses indicated that it would be most likely to reduce non-compliance.
These changes are expected to be legislated for and take effect from April 2026.
One more thing to note is the operation of mini umbrella companies (MUCS) to exploit the VAT Flat Rate Scheme and Employment Allowance to gain a financial advantage. The government has stated they will not take forward any further action in this area until they have seen the impacts of the above umbrella company changes.
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