HMRC publishes new guidance on umbrella company reforms

Background

On 17 September 2025, HMRC published new sections of its Employment Status Manual (ESM2400–ESM2440) together with supplemental guidance on PAYE rules for labour supply chains involving umbrella companies. The guidance reflects measures to be introduced by the Finance Bill 2026, which will take effect from 6 April 2026.

Draft legislation was issued in July 2025 to address non-compliance in the umbrella company market. The key proposals include making UK agencies jointly and severally liable for the PAYE liabilities of the umbrella company that employs the worker. In some cases, liability may instead attach to the end client.

HMRC guidance

The new manual paragraphs largely track the draft legislation but provide useful illustrations of how the rules will operate. These include examples on:

• when the new regime will begin to apply (ESM2410)
• how to identify which parties in a labour supply chain could be held jointly and severally liable for unpaid PAYE liabilities (ESM2425).

The relevant provisions will be introduced into the Income Tax (Earnings and Pensions) Act 2003, which underpins the PAYE system. While HMRC stresses that the guidance remains subject to revision, it offers helpful insight into how the new regime is likely to be applied in practice.

Learning points 

Employers engaging labour via umbrella companies should be aware that from April 2026, liability for PAYE compliance may extend beyond the umbrella company itself. Agencies and, in some cases, end clients may find themselves responsible for unpaid liabilities. Businesses should begin reviewing supply chain arrangements now to ensure compliance.

For more information or advice, please contact Sofia Efstathiou in our Employment team.