These rules are based on draft legislation and the government’s approach to tackling non-compliance in the umbrella company market.
HMRC issued guidance on 17 September 2025 outlining new rules that place responsibility on recruitment agencies or end clients for operating Pay As You Earn (PAYE) on payments made to workers engaged through umbrella companies.
These rules are based on draft legislation and the government’s approach to tackling non-compliance in the umbrella company market.
Definition of umbrella companies
An umbrella company employs workers on behalf of either:
- an agency
- the business the employees work for (the end client)
They have the legal responsibilities as an employer for employment rights and the liability to HMRC for:
- PAYE Income Tax
- student loan repayments
- employee and employer National Insurance contributions
The definition of umbrella companies also includes any business supplying labour under a contract of employment.
End clients
End clients must check if the worker is supplied to them by an agency or umbrella company.
The rules will apply to:
- new and existing labour supply chains
- money paid to workers on or after 6 April 2026
- the agency that has the contract with the end client to supply workers
- the end client, if there’s no agency involved
- 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.
If any part of the chain is non-UK based, they will need to refer to the Employment Status Manual ESM2420 — Umbrella companies legislation.
When the rules will not apply
The rules will not apply if the workers are:
- employed through their own personal service company, if certain conditions are met — read Understanding off-payroll working (IR35)
- deemed to be employed through a managed service company — read ESM3510 — Meaning of managed service companies
- salaried members of a Limited Liability Partnership — read Partnership Manual PM251000 — The salaried member guidance
- treated as employed by an agency — read ESM2039 — Agency and temporary workers: agency legislation
However, there may be some circumstances when the new rules will apply in these cases — read ESM2440 — Purported umbrella companies.
