If there’s one thing HMRC is good at, it’s keeping accountants in business and employment agencies on their toes. And the latest set of rules around umbrella company fraud does exactly that.
From April 2026, recruitment agencies and businesses using umbrella companies will become legally responsible for any unpaid PAYE (Pay As You Earn) and National Insurance Contributions (NIC) owed by the umbrella company they’ve partnered with.
Put simply, if your supplier doesn’t pay their tax bill, you might be forced to, along with the possibility of criminal penalties, business closure, or even director disqualification.
So, if your business supplies contractors or temporary workers via an umbrella company, it’s essential to get on top of your tax compliance responsibilities, now, not later.
Understanding the new HMRC rules for umbrella company fraud schemes
HMRC is targeting a growing issue: non-compliant umbrella companies, especially so-called mini-umbrella company fraud schemes. These are often created to exploit tax loopholes, reduce employer costs, and ultimately avoid paying the correct taxes.
But here’s the catch: the new rules don’t just apply to “mini” umbrellas. Any umbrella company arrangement, regardless of size, could now expose your agency to serious tax liabilities.
By April 2026, if HMRC finds that the umbrella company you’re using hasn’t met its tax obligations, you could be held accountable.
This could mean having to:
- Repay unpaid PAYE and NIC
- Face prosecution for tax fraud involvement
- Lose the right to reclaim VAT on your costs
- Receive penalties for VAT fraud or enabling tax avoidance
- Suffer potential business closure or be disqualified as a company director
That’s a pretty steep price for someone else’s dodgy tax behaviour.
How employment agencies can stay compliant
There’s good news, you can take steps now to protect your agency. Here’s a clear checklist to reduce your risk and keep HMRC happy.
1. Audit your umbrella company suppliers
Start with a thorough review of any umbrella companies you’re currently working with.
- Who owns the business?
- Where are they based?
- How is the business structured and financed?
- Are they transparent about payslips, tax deductions, and payroll processes?
Ask awkward questions. The right supplier won’t mind. In fact, they should expect it.
2. Use HMRC’s umbrella company fraud resources
HMRC is actively publishing warnings and guidance on umbrella tax fraud and suspicious company setups.
Check their site for updates, especially the sections on:
- Mini-umbrella company fraud
- Due diligence on labour suppliers
- Work out pay from an umbrella company
If your supplier is on a warning list, or their practices don’t match up with HMRC guidance, it’s time to find a new one.
3. Create an approved umbrella supplier list
Once you’ve done your checks, build an internal approved supplier list.
Make sure your consultants or team only use providers on that list. This gives you better control, fewer surprises, and a stronger case if HMRC ever comes knocking.
4. Monitor suppliers regularly
Don’t make compliance a one-off task. Umbrella companies can change their operations, structures, or financial setups, and not always for the better.
We recommend reviewing suppliers at least every 6 months. Ask for:
- Monthly evidence of tax payments
- Access to anonymised payslips for review
- Updates on any operational changes
You can also use HMRC’s “Work Out Pay” tool to spot discrepancies in payslips. It’s not perfect, but it’s a useful starting point.
5. Consider running payroll in-house
If you really want to take control, one option is to ditch umbrella companies altogether and run your payroll internally.
It’s a bit more admin, but it gives you:
- Full visibility over payments, taxes, and compliance
- Direct control over PAYE and NIC deductions
- Fewer third-party risks
And of course, if you’re thinking about setting up payroll in-house, we can help you get started, with systems, processes, and support tailored to your size and sector.
Why you should act now (not in 2026)
The April 2026 deadline might feel like a long way off, but HMRC isn’t known for leniency once new rules kick in.
By the time most businesses are scrambling to act, you could already have your compliance house in order, which puts you in a far stronger position.
More importantly, it protects your business and your clients from being dragged into a mess that isn’t of your making.
Start now by:
- Reviewing your current umbrella company relationships
- Carrying out due diligence on ownership, processes, and payment history
- Putting a review process in place
- Speaking to a specialist accountant (that’s us) for practical advice
How JVCA can help
If you’re a recruitment agency, employment business, or professional services firm using umbrella companies to supply staff or contractors, we can help you:
- Review your umbrella supplier setup
- Carry out due diligence using HMRC guidance
- Set up in-house payroll if that’s the right move for your business
And we’ll explain it all in plain English, no hard to understand ‘accountant language’, no boring lectures (we promise!).
Get in touch with the team at JVCA, based in Cranfield and helping businesses across Milton Keynes, Bedfordshire, and surrounding areas.
We’ll even throw in a cuppa and a few biscuits while we chat!
