The Finance Bill is here: what recruiters need to know now

The Finance Bill was introduced to the House of Commons on 2nd December 2025 and is unlikely to meet too many obstacles as it passes through parliament. Barring a major surprise, it will come into force, as planned, in April 2026. 

The key part of the Bill for recruitment businesses is the new Chapter 11 of the Income Tax (Earnings and Pensions Act) 2003. Chapter 11 introduces the concept of “joint and several liability (JSL)” for unpaid PAYE. 

The meat of the Bill was widely trailed in advance. From April, JSL puts recruitment agencies on the hook for the PAYE due in respect of workers contracted by the umbrella companies in their labour supply chains. What’s more, claiming due diligence, accreditation, ignorance or innocence offers no legal defence. 

Now that the Finance Bill is making its way through parliament, let’s run through some important points and what recruitment businesses should be doing to prepare for the April deadline. 

The hierarchy of liability (or who’s on the hook) 

In most cases, the Bill makes clear that the agency closest to the end client will be liable for the PAYE of non-compliant umbrella businesses in their supply chain. If you as an agency hold the contract with the client, HMRC will come to you first if PAYE is unpaid, whether that’s because of tax avoidance further down the chain, or for any other reason whatsoever – liability is strict, and there are no excuses. 

If there’s no agency in the chain, just a client and an umbrella, the client becomes liable.  

Sometimes, a labour supply chain might include a “captive” umbrella (the term I use for an umbrella company connected in a legal sense to an agency, perhaps a subsidiary of the agency). In that case, the client also becomes liable for unpaid tax, as well as both the agency and the “captive” umbrella. 

Keeping HMRC at bay 

If you’re an agency with a client contract and umbrellas in your supply chain, how do you stay on the right side of HMRC? When it comes to workers and PAYE, there are three boxes you need to tick: 

1) That tax has been correctly calculated and deducted 

2) That tax has been correctly reported 

3) That tax has been paid 

In the first two, it may be a relatively simple matter to get at least a reasonable degree of comfort, through sanity checks on a sample of payslips and other straightforward tests. The math isn’t hard. It should be immediately clear in most circumstances if tax calculations are substantially wrong, on any significant scale. A payslip checking service like SafeRec, or FCSA’s VeriPAYE may also be used. 

Ticking the third box is trickier. There are three potential approaches: 

1. Trust the umbrella to pay the tax

Many may feel this a perfectly reasonable approach, especially when the agency and umbrella have been working successfully together for a long time, as is often the case.  It is after all unlikely that the umbrella would still be in business if it had a track record of failing to pay its PAYE liabilities on time. 

2. Pay the tax yourself

The agency can pay the tax to HMRC, quoting the umbrella’s PAYE reference number. That gets around risks associated with the time lag between when tax is accrued and when it’s actually paid – something that can quickly add up to big numbers.

For example, where workers are paid weekly and tax is paid monthly, there will be a point during each month at which about seven times the weekly PAYE is owed to HMRC, even where the PAYE is paid strictly on time.

It also gives you peace of mind – you’ll have the receipts! Such an approach may overcome risks not in any way directly related to PAYE – like the honest umbrella which suffers a catastrophic bad debt, and has no choice but to enter insolvency, leaving HMRC debts unpaid. 

3. Use a Compliance Service Provider

This is the term I use for a third-party participating in the process more actively. For example, one providing accurate calculations, telling the agency what needs to be paid to HMRC and when, and generally monitoring (and to an extent managing) the entire process. I understand that such a service will very shortly be offered by Professional Passport’s FORTIS, and other similar services may in due course follow. 

Anti-avoidance legislation: deliberately vague? 

One way an agency might get into hot water is over the thorny topic of self-employment. An umbrella in your labour supply chain might genuinely believe that a worker meets the criteria for self-employed status. The problem is, HMRC might disagree.  

In a nutshell, HMRC considers all workers contracted through umbrellas as employed for tax purposes unless they are genuinely self-employed and not under Supervision, Direction and Control (SDC). SDC is a test designed to separate genuine claims from false claims of self-employment for the purposes of tax. 

The anti-avoidance legislation in the new Bill is loose and open to interpretation in this regard. This is probably deliberate. The government wants to make sure the new laws catch things they haven’t thought of yet and will let the courts work out the details. 

The primary focus of the anti-avoidance provisions seems to be to bring into the Chapter 11 net situations where some parties in the chain may have been led to believe that a worker has been engaged as (for tax purposes) an employee, when in fact they have been engaged on some other basis. 

The main thing for agencies to take from it is that contractual clarity is essential. There needs to be clear agreement between the agency and the umbrella about the basis on which any individual is engaged, and whether he or she is employed or self-employed. 

As a lawyer working in this field, I’d expect this to happen anyway. The basis on which the worker is to be engaged should be clearly understood and agreed by all parties from the outset. I would expect the contract and any assignment schedule to be tailored in a way that’s appropriate to the basis on which all parties have agreed the worker should be engaged.  Agencies should ensure that, in one way or another, they have confirmation in writing of that basis. And there is the incentive that, if the umbrella is found to have avoided PAYE through false claims of self-employment, as the agency, you could end up with the bill. 

What to do now 

Some umbrellas and agencies will be prepared for April 2026 already. Some will be a long way from ready. Everyone should be taking steps to prepare for what promises to be a fundamental reform of the temporary labour supply chain. 

For umbrellas 

The best advice for umbrellas is probably to be prepared to be flexible. Satisfying clients and agencies that you are a trustworthy partner will not be a one-size-fits-all fix. In each case, you need to be able to address and react with agility to the specific concerns of others in supply chains, in the way that works for them. 

For recruitment agencies 

If you’re a recruiter, think about how you’ll tick the boxes mentioned earlier. It’s worth at least considering paying the tax owed in respect of workers in your supply chain direct to HMRC yourselves – check whether or not your current umbrellas are prepared to do that. Agencies may feel that taking this responsibility in-house gives them a sufficient degree of control and peace of mind but still leaves them free of the admin and employer-related risks that umbrellas routinely carry.  

Some larger recruitment agencies might feel they wish to take the entire process in-house, including other payroll and HR functions – though of course they’d need to prepare their systems and staff so they’re in a position to take over this function. And the bigger the agency, the larger the associated logistics issues. 

Every recruiter is likely to take a long hard look at their preferred supplier lists. Due diligence checks will become more thorough and more frequent. Make sure you have the resources to cope with this surge in activity. 

Evolution – not revolution – is coming 

Despite the coming storm, I firmly believe that relationships between recruitment agencies and umbrella companies will remain a key part of the temporary labour supply chain. 

Most agencies aren’t set up to do payroll and HR at scale, as good umbrellas are.  

Successful recruiters want to focus on what they do best, which is making connections, and placing people in roles.  

The main takeaway for recruitment agencies from the new Finance Bill is that thorough supply chain management is now a must. In addition, paying the tax of temporary workers directly to HMRC might be worth considering, at least in some circumstances. After all, the only defence to a JSL claim from HMRC against an agency will be to show that the correct amount of PAYE in respect of its workers has been calculated, reported, and actually paid to HMRC.   

Collaboration will be key. Start working with labour supply chain partners now to create the transparency and trust the new legislation demands. 

Support from Kingsbridge

Navigating tax legislation and ensuring compliance can be challenging for every point of the supply chain. Kingsbridge offers tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Their team is dedicated to helping businesses understand and adapt to the evolving tax landscape.

Kingsbridge also offers a range of flexible business insurance options to support contractors and the businesses that engage them, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.

To find out more, contact Kingsbridge today.

Roger Sinclair, Legal Consultant & Founder of Egos

Roger Sinclair is the founder of Egos, a Legal Consultancy specialising in Contract, Commercial and Corporate, Employment, and Copyright & IP/IT law.

For the past 30 years he has focused on the needs of freelancers and those providing services to or engaging them. His client base includes many freelancers, umbrellas, agencies and end clients. Legal areas covered include contract, commercial, corporate, employment, and copyright & IP law.