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On Monday 21st July 2025 (L-Day) the draft legislation for the Finance Bill: 2025-26 was released and as many of us suspected, HMRC are planning to clamp down on tax non-compliance in the umbrella company market.
But what does this change mean? Are you affected? What should you do now? And how long do you have to make sure you are up to speed on everything?
We’ve delved into the draft bill to pull out all you need to know…
What the draft bill says
“Tackling tax non-compliance in the umbrella company market: The government is publishing draft Income Tax legislation to make recruitment agencies accountable for Pay As You Earn (PAYE) on payments to workers supplied via umbrella companies. Where there is no agency, this responsibility falls to the end client. Regulations giving effect to this measure for National Insurance contributions purposes will be laid separately. The legislation creates a joint and several liability, allowing HMRC to pursue the agency (or end client) for payroll taxes that an umbrella company fails to pay on their behalf. This measure will reduce tax non-compliance (raising around £500m in 2029-30), create a level playing field for compliant businesses, and protect workers from unexpected tax bills.”
What does this mean for recruitment agencies?
“Many of the recruitment agencies we work with have chosen to partner with Umbrella Companies to reduce their compliance and administrative burden and ensure that Pay As You Earn (PAYE) and National Insurance contributions are dealt with by experts,” says Kingsbridge Managing Director, Andy Robinson. “The draft Finance Bill will be a disappointment to those companies who are already struggling under the compliance burden of IR35.”
“While the intent behind the legislation – to reduce non-compliance and protect workers – is understandable, the risk of joint and several liability places further pressure on agencies and end clients, who may not have visibility or control over umbrella company practices,” he continues. “This adds yet another layer of complexity and risk to what is already a tightly regulated space.”
If you are currently engaging any workers via an Umbrella Company where they are responsible for paying out correct Pay As You Earn and National Insurance contributions, then you will be affected by this proposed change.
Once the new Finance Bill is law, you will need to ensure that this process is compliant otherwise you could end up accountable for any unpaid Pay As You Earn (PAYE) payments.
There is also a hint that a similar regulation could also be coming to cover National Insurance contributions too.
What does this mean for end clients?
If you currently engage workers via a recruitment agency, then you don’t need to worry (for now, at least). However, if you engage workers directly through an umbrella company then you will be affected by the proposed changes.
Like affected recruitment agencies, if the umbrella companies you work with are found to be non-compliant, then you could end up accountable for any unpaid Pay As You Earn (PAYE) payments.
This means that if the draft bill becomes law, you need to ensure any umbrella companies you work with are operating in a compliant way.
When does this become law?
Currently, this is a draft bill and as such could be subject to change. According to the announcement “The final contents of Finance Bill 2025-26 will be decided by the Chancellor at the next Budget.”
The next budget is likely to be in late October or early November, but no exact date has been provided.
What should I do now?
If you are currently engaging any workers via an umbrella company, then it is wise to use this time to start a dialogue with these companies to discuss their current processes in relation to PAYE.
“We strongly encourage all businesses that rely on umbrella arrangements to use this draft period to review their supply chains, speak with umbrella providers, and understand how payroll compliance is managed,” Andy Robinson states. “Early engagement is key.”
“At Kingsbridge, we’re already working with our partners to help them prepare for what’s coming, and we stand ready to support clients with practical guidance and tools to reduce risk and ensure compliance.”
Even though this draft bill isn’t yet law, it is sensible to spend these months endeavoring to fully understand the PAYE regulations and how these might differ from worker to worker. This will help you to engage in discussions with your umbrella companies.
How can Kingsbridge help?
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. Our 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 us today.
