Tackling tax non-compliance in the umbrella company market
In the Autumn 2024 Budget, the Government announced measures to combat tax non-compliance in the umbrella company market.
Budget announcement
The Government has confirmed that PAYE and National Insurance Contributions (NICs) responsibilities will shift from umbrella companies to recruitment agencies that place workers with end clients—or directly to end clients where no agency is involved. This adjustment is intended to reduce tax compliance risks for workers and improve transparency in the labour supply chain. The changes will be implemented by the Finance Bill 2025 and will take effect in April 2026,
HMRC data from 2022-2023 indicates that over 700,000 workers were engaged through umbrella companies, with an estimated 275,000 workers affected by tax avoidance schemes or similar practices, resulting in significant tax losses. Following a 2023 consultation, the government selected this legislative shift as the most effective solution for addressing non-compliance and ensuring that workers receive consistent tax treatment, regardless of their engagement method.
The Government anticipates that this measure will save approximately £2.8 billion in tax losses over the next five years. Agencies and end clients relying on umbrella companies for payroll may need to implement due diligence checks to confirm that tax obligations are met under the new legislation. Further guidance and draft legislation are expected in the coming months.
We will continue to monitor and report on further developments.