The umbrella labour market is facing major change.

From April 2026, recruitment agencies and MSPs may become jointly liable for unpaid PAYE tax and National Insurance contributions if an umbrella provider in their supply chain fails to meet its obligations. These changes, introduced as part of the government’s wider effort to tackle non-compliance in the temporary labour market, represent a significant shift in responsibility.

For agencies and consultancies alike, the message is clear: compliance can no longer be treated as someone else’s problem.

Understanding What’s Changing

Currently, umbrella companies are responsible for handling tax and payroll obligations on behalf of contingent workers. But over the years, the market has seen growing concern around mini-umbrella schemes, tax avoidance, and questionable practices — some of which have been flagged in government consultations, media reports, and recent legal action.

To combat this, HMRC is proposing that, in certain circumstances, recruitment businesses may become jointly and severally liable if the umbrella company fails to properly operate PAYE. This doesn’t apply to every relationship, but it raises the stakes significantly for those with weak oversight or limited visibility over their umbrella partners.

Even where liability does not apply, the reputational damage and operational fallout from being associated with a non-compliant provider can be considerable.

Why It Matters

For years, many agencies have worked at arm’s length from their umbrella providers. The relationship has often been based on trust or cost, rather than active oversight or due diligence.

That may no longer be enough.

If passed into law, these changes mean agencies need to be far more rigorous in who they work with, how they engage them, and what assurances they receive around compliance. Ignorance is no longer a defence — and passive relationships may carry new levels of risk.

In practical terms, this could mean:

  • Reviewing contracts and working relationships
  • Asking for clearer audit trails and reporting
  • Reconsidering any arrangements that prioritise margin over integrity
  • Taking advice on your responsibilities within the labour supply chain

How to Prepare

It’s not all bad news. The proposed changes are still some times away, giving the industry a window to respond proactively.

Start by understanding your exposure. Who are your umbrella partners? Are you confident they’re operating compliantly? What evidence do you have?

Next, invest time in supplier due diligence. This doesn’t need to mean cutting ties — it means setting clearer expectations, improving documentation, and creating a paper trail of responsible oversight.

Finally, consider how scalable your current model is. If your business is growing across regions or delivery models, this is an opportunity to tighten your foundations and prepare for more sustainable growth.

Why It’s Bigger Than Compliance

This isn’t just a compliance issue — it’s a brand and reputational issue too.

If contractors are affected by payment failures or discover that their umbrella provider is under investigation, the impact on trust can be immediate. Clients may also scrutinise who you work with and how you manage your supply chain risk.

Building a reputation for operational excellence and compliance isn’t a box-ticking exercise. It’s a differentiator, especially in competitive or regulated sectors.

How We’re Supporting Our Clients

At Sonovate, we work with recruitment businesses, consultancies and labour platforms who are looking to scale sustainably. That includes helping them navigate complex supply chains with greater visibility, control and resilience.

Through our platform, we help agencies fund placements, manage back-office tasks and streamline processes — without relying on disconnected third parties. We also work closely with selected umbrella and payroll providers to ensure that those who support our clients meet the right standards.

As the market evolves, we’re committed to helping agencies prepare for what’s next — not just react to it.

Final Thoughts

April 2026 may seem far away, but the impact of these changes will be long-lasting.

If you rely on umbrella partners, now is the time to start asking the right questions, reviewing your contracts, and making sure your operations are ready.

By doing the work now, you’re not just preparing for a new rulebook; you’re building a stronger, more transparent business that clients and contractors can trust.