On the 17th of September 2025, HMRC published an update to its Employment Status Manual (ESM) 2420 in relation to the upcoming Umbrella Companies Legislation.
The update focused on PAYE rules for labour supply chains that include umbrella companies and form part of the government's approach to tackling non-compliance in the umbrella company market.
FCSA Analysis of ESM Update.
As an FCSA-accredited umbrella company, Champion Contractors is fully supportive of all actions aimed at driving non-compliance from the umbrella sector. We perceive the legislative shift to joint and several liability (JSL) from April 2026 as another positive step forward for compliant umbrella businesses.
In response to the update, FCSA analysed the manual and highlighted the following key points:
- Umbrella companies employ workers on behalf of either agencies or directly to end clients. In doing so, they have a legal responsibility as an employer for employment rights and the liability to HMRC for PAYE Income Tax and employee and employer National Insurance contributions.
- Any reference to an umbrella company includes any business supplying labour under a contract of employment.
- Effective from April 6, 2026, the rules will apply to the agency that has the contract with the end client to supply workers, or the end client itself, if no agency is involved, and the umbrella company.
- The agency or end client will be responsible for making sure PAYE is operated correctly when an umbrella company employs their workers.
- HMRC will be able to recover any underpayment of PAYE directly from the agency or end clients.
What JSL Means for All Parties in the Supply Chain
MSPs, Agencies and End Clients
Depending on the contractual arrangements, MSPs, agencies, or end clients will be responsible for ensuring that umbrella companies within the supply chain operate PAYE correctly.
If HMRC finds that the umbrella company has not paid the correct taxes and NICs, it will be able to recover them from whichever party is jointly and severally liable (the MSP, agency, or end client).
Umbrella Companies
Umbrella companies will remain responsible for calculating and paying PAYE tax and NIC to HMRC. They will need to provide proof to MSPs, agencies and end clients that this is happening.
Umbrella employees/contractors
Contractors will remain the employees of the umbrella companies, who will remain responsible for employment rights and payments.
Business As Usual for Champion Contractors
As an FCSA and SafeRec accredited umbrella payroll company, Champion's compliant and transparent service offering already meets the demands and requirements of the new umbrella company legislation.
MSPs, agencies and end clients can rest assured that Champion calculates, administers and correctly pays all PAYE taxes and NICs every time. Our industry accreditations ensure that we provide proof of compliant and accurate payments to HMRC each month, providing a completely transparent process that leaves no room for doubt throughout the supply chain.
For more information, contact the Champion team on 0161 703 2549 or email info@championcontractors.co.uk.