The much-discussed changes to legislation governing payments through Umbrella companies come into effect on 6th April. As usual, there has been plenty of marketing from competitors based simply on crude scaremongering, without any detailed analysis. Yes, there are changes regarding the liabilities within supply chains that use Umbrella companies (or potentially any contracting intermediary) that take effect from 6th April, so for a sensible explanation about the changes, read on!
Background:
The regulation changes are part of the government's ongoing strategy to challenge perceived bad practice and non-compliance in labour market supply chains, where some Umbrella companies have historically been central to these bad practices.
The new regulations introduce two new key provisions:
- A statutory definition of an Umbrella supplier, and
- The express right to effectively make any party within the supply chain jointly and severally liable for any unpaid PAYE.
The Government's explanation for the changes is as follows:
"As of early 2026, there is no single, long-standing statutory definition of an umbrella company in the UK. They are generally defined by their function: employing temporary workers (contractors) via an overarching contract, acting as an intermediary between the worker and an agency/client, and handling payroll (PAYE/NICs).
However, this is changing:
- New Statutory Definition: Proposed legislation in the Finance Bill (No. 2) 2024-26 and subsequent government guidance introduces a statutory definition for the first time, aimed at curbing non-compliance.
- Effective Date: The new rules and definitions, including "purported umbrella companies" and "joint and several liability" for tax, are expected to be enforced from 6 April 2026.
- Definition Scope: The upcoming rules define an umbrella company broadly as a third party that engages a worker and supplies their labour to an end client, becoming responsible for PAYE/NICs.
Prior to 6 April 2026, the term is often used loosely, covering a variety of arrangements, ranging from compliant providers to those facilitating tax avoidance. HMRC, for compliance purposes, describes them as "a UK limited company which acts as an employer to a number of individuals, meeting PAYE and other requirements"."
So let's unpick this a little, and understand the implications for EEBS clients, shall we?
Firstly, the vast majority of EEBS clients work exclusively with self-employed sub-contractors rather than the employment/PAYE model; where we do operate PAYE for clients, the services are entirely compliant with HMRC's expectations.
With reference to our CIS provisions, for the new rules to be an issue, a number of criteria would have to occur:
- Firstly, after a status inspection of a client, HMRC would have to challenge the legitimacy of the arrangements that we have in place. Given that dozens of EEBS clients have been inspected in nearly 25 years of operation, without any challenge to the legitimacy of our arrangements, this is highly unlikely. And note – there is absolutely no change to the underlying rules that govern the fundamental tests for establishing self-employment (and indeed supervision, direction or control) in the construction industry, and we have passed this test on multiple occasions!
- Those employment status tests are determined by the courts, not HMRC.
- Secondly, HMRC would then need to prove that EEBS are in fact within the scope of the new statutory definition.
- And thirdly, in the unlikely event of the above occurring, EEBS would challenge that decision through the independent tax tribunal services, and ultimately our guarantee still applies!
