Measure
At the moment, where an umbrella or employment company is present in a labour supply chain, the responsibility to ensure PAYE is operated correctly on payments made to the workers employed by them falls on the umbrella company itself.
As an anti-avoidance measure, in future the responsibility to ensure PAYE is operated correctly on payments made to the workers employed by the umbrella company will be transferred elsewhere: to the end client, where that end client has a direct contract with the umbrella or employment company. Where the end client has engaged an employment agency for the provision of a worker’s services, the employment agency will be responsible for ensuring PAYE is operated correctly on payments made to the worker where that worker is employed by the umbrella or employment company. Where there are multiple employment agencies in the labour supply chain, it will be the employment agency that has the contract with end client (‘agency 1’) that will be responsible.
The party responsible for operating PAYE (either the end client or agency 1) can still choose to outsource operation of payroll to the umbrella or employment company. However, that party will be liable for any shortfall and not the umbrella or employment company.
Full details of how this measure will operate will be published over the coming months together with draft legislation ahead of its introduction to Parliament as part of Finance Bill 2025. Stakeholders will have the opportunity to provide feedback on the government’s detailed proposal.
To help businesses with the implementation of the measure, the government will publish an online tool to help workers and agencies understand pay from umbrella companies.
The measure will primarily affect end clients and employment agencies who use and supply contingent labour employed through umbrella or employment companies.
This measure will take effect from 6 April 2026.
Measures to address non-compliance in the umbrella and employment company marketplace are to be welcomed. The challenge for end clients and agencies ahead of any draft legislation and detailed guidance is understanding how this will impact their approach to diligence and engagement terms in their labour supply chain.