Liability for an umbrella company's unpaid tax

The tax liability applies across the UK, including Northern Ireland. The Fair Work Agency's rules for employment businesses apply in Great Britain.

How the liability works

An umbrella company employs the worker and stays responsible for operating PAYE. Since 6 April 2026, if it does not pay the tax and National Insurance on what it pays the worker, HMRC can recover the debt from you as well. You do not become the employer.

Section 24 of the Finance Act 2026 makes the agency or end client liable for the PAYE the umbrella company must account for. The Social Security Contributions (Umbrella Companies) Regulations 2026 do the same for National Insurance. Joint and several means HMRC can ask you for the whole amount, not a share of it.

The date of payment decides whether the rules apply, not the date of the work. Supply chains that existed before the rules started are covered. The liability includes disguised pay, such as payments labelled as loans.

Where you sit in the chain

Liability depends on who contracts with whom. Trace the contracts from the worker back to your business to find out whether you are liable.

Where several agencies sit in the chain, only the agency that contracts with the end client is liable. Agencies further down are not.

If one umbrella company pays a worker one amount from several agencies' money, each agency is liable only for the part that relates to its own client. HMRC apportions the amount and uses reasonable judgement when it lacks information.

The rules also catch a business that acts like an umbrella company without being the worker's employer. The law treats that business as the worker's employer for income tax.

A shareholding that a worker creates to avoid the liability does not take the arrangement outside the rules.

How HMRC recovers the tax

HMRC can issue a PAYE determination to you under regulation 80 of the PAYE Regulations 2003, as it would to an employer. The law does not require HMRC to pursue the umbrella company first: it may pursue you, the umbrella company, or both.

If HMRC thinks you may be liable, it can tell you who the umbrella company and the worker are and how much is owed. You must not pass that information on without HMRC's consent. Wrongful disclosure can be a criminal offence.

Due diligence checks

Checks lower the chance that you use an umbrella company that does not pay its tax. They do not remove the liability once it arises. Keep a record of each check.

Run these checks before you use an umbrella company, and repeat them regularly:

• map the whole chain, including who engages and who pays the workers
• check Companies House for the directors, trading history and any past failures
• check the VAT registration and that the business name matches the VAT checker
• check HMRC's published lists of defaulters and scheme promoters
• get payslips from the umbrella company and from the workers, and compare them
• check that the employer named on each payslip is the umbrella company
• test net pay against the HMRC umbrella pay tool
• write into the contract a right to see PAYE evidence and to approve any further subcontracting

Warning signs

Look at these signs together rather than one at a time. They point to an umbrella company that may not be paying its tax:

• payments to workers labelled as loans, grants, salary advances or bonuses
• net pay higher than the pay tool estimates, or pay below the agreed rate
• different payslips for the worker and for the agency, or payments that exceed the payslip
• a new company with little trading history
• frequent changes of company name, PAYE reference or bank details
• several companies with similar names, set up together, with directors who have no labour supply experience
• an offshore umbrella company, or requests to pay a third party
• long chains or several layers of umbrella companies with no commercial reason
• promises of higher take-home pay, or financial incentives to use a particular umbrella company
• prices that look too good to be true

If an umbrella company fails your checks, stop using it and tell the workers affected. Report suspected fraud to HMRC.

Who enforces what

HMRC enforces the tax and National Insurance liability. The Fair Work Agency does not. It took over from the Employment Agency Standards Inspectorate and enforces the rules for employment businesses in Great Britain. These include the duty to give agency workers a key information document before agreeing terms, with extra detail where an umbrella company is used.

Where to get help

Ask HMRC if you are unsure whether you are liable or you receive a request about an umbrella company. Complaints about an employment business in Great Britain go to the Fair Work Agency.