Tackling Non-Compliance in the Umbrella Company Market: Agencies to Lead the Charge

The Autumn Statement, delivered by Chancellor Rachel Reeves on 30 October, included several significant proposals likely to impact the UK's contingent labour market.

However, one proposal had more significance than most for recruitment agencies that supply contractors and temporary workers via umbrella companies.

Following the autumn statement, the government published an update to its “Tackling non-compliance in the umbrella company market” policy paper. The update confirmed the government's intention to bring forward legislation to change who is responsible for accounting for Pay As You Earn (PAYE) when an umbrella company is used in a labour supply chain to engage a worker.

Recruitment Agencies to take responsibility for PAYE.

The paper highlighted estimated tax revenue losses of over £500 million in 2022/23 due to disguised remuneration tax avoidance schemes and 'mini umbrella company' fraud, all facilitated by umbrella companies.

To stem such activities, the government has proposed moving the responsibility to account for PAYE from the umbrella company that employs the worker to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, this responsibility will sit with the end client. This will take effect from April 2026.

The move aims to promote a self-policing culture where agencies conduct stringent due diligence on the umbrella companies within their supply chain to avoid the risk of unwanted tax liabilities.

Do Recruitment Agencies Need to Take Action?

Agencies that supply workers via umbrella companies should take immediate action.

Although the legislation will not be implemented until 2026, the risk of non-compliance within the supply chain applies now.

Agencies that have not completed supply chain due diligence and have little knowledge or control of their supply chain are at serious risk of being found complicit if tax avoidance schemes are identified within their supply chain.

A quick and straightforward remedy is only engaging with compliant and transparent umbrella providers like Champion Contractors. Our FCSA accreditation and SafeRec certification mean that Champion operates compliantly with UK PAYE tax law and to the highest standards of service defined by the industry.

Working with Champion Contractors means that recruitment agencies need only make little or no changes to their current processes to remain risk-free and compliant with current and proposed legislation.

For more information on how to prepare for and stay compliant with the proposed changes, contact the Champion Contractors team at 0161 703 2549 or email info@championcontractors.co.uk.

Alternatively, visit our website at https://www.champion-contractors.co.uk/ or follow us on LinkedIn for further updates.