The UK government is taking decisive steps to tackle non-compliance in the umbrella company sector. Following extensive consultation with stakeholders including industry bodies, recruitment experts, and legal professionals — a new policy direction has been outlined. From April 2026, changes to tax liability rules will reshape the contingent labour supply chain and place significant new responsibilities on recruitment agencies and Managed Service Providers (MSPs).
The Legislative Shift: Joint and Several Liability is Coming
At recent meetings held with industry stakeholders and trade associations such as FCSA, HMRC have confirmed that they plan to adopt a Joint and Several Liability model for umbrella company tax compliance. This approach will hold the agency closest to the end client often the MSP responsible for PAYE and National Insurance Contributions (NICs) if a non-compliant umbrella company fails to meet its obligations.
Whilst the policy still requires ministerial approval, we expect from 6 April 2026, if a recruitment agency outsources payroll operations to an umbrella company, the agency along with the umbrella company, will remain liable for any shortfall in tax. Where no agency is involved, the liability will pass to the end client.
Why This Matters to MSP’s
The reforms are a response to long-standing issues in the sector: tax avoidance schemes, worker exploitation, and lack of visibility in convoluted supply chains. The message from government is clear — compliant umbrella companies have a legitimate role, but the days of unchecked outsourcing are over.
If you’re an MSP, the risks are even greater. As the agency closest to the hirer (lead agency, as per the consultation), the MSP is also liable for any unpaid tax due to non-compliant umbrella’s engaged by you, or any of your supply chain.
- Accountability at the top – You can no longer rely on contracts or surface-level checks. If an umbrella fails in its obligations, you could be footing the bill.
- Increased compliance risk –As the lead agency, you are liable for any unpaid tax throughout your supply chain.
- Operational review needed – This is the time to interrogate your PSL, vet suppliers, and simplify your supply chains where possible.
Reducing Risk: Visibility is Non-Negotiable
Many MSPs rely on multi-tier supply chains. A role might pass from an MSP to a supplier, then on to another recruiter, who finally places a candidate via an umbrella. In this scenario, the MSP is flying blind with little to no visibility of how workers are employed or paid.
This lack of transparency increases:
- Exposure to non-compliance if an unknown umbrella fails to deduct correct PAYE/NICs.
- Risk of reputational damage, especially if linked to tax avoidance or worker mistreatment.
- Operational complexity, adding friction and cost to contract delivery.
Solutions: What You Can Do Now
Here are key steps every agency and MSP should be taking in advance of April 2026:
- Audit Your Supply Chain
Understand every layer: Who is the employer? Who pays the worker? Who handles payroll? Identify any overseas operators or unknown umbrella firms — these are high-risk flags.
- Review Your Preferred Supplier List (PSL)
Stick to trusted, financially stable and long-established umbrella companies. Make sure your internal teams only use PSL-approved providers and monitor payroll outputs to verify compliance.
- Implement Ongoing Due Diligence
This isn’t a one-time check. You need recurring, targeted audits and robust onboarding processes. Compliant umbrellas like those accredited by FCSA welcome scrutiny avoid any provider unwilling to be transparent.
- Explore Simpler Engagement Models
Consider an Agency Margin Only model already used by many of Giant’s MSP partners. This limits the recruitment agency to taking their margin while ensuring only approved umbrella companies are engaged by the MSP. It delivers:
- Full visibility on payroll processing
- Simpler tax compliance
- Reduced administrative burden
- Lower risk of tax exposure
- Review Contractual Protections
Make sure indemnities around PAYE/NICs are in place and enforceable. Choose financially strong umbrella partners so that indemnities actually carry weight.
Conclusion: A New Compliance Era
With legislative reform fast approaching, MSPs need to act now. Review your supply chains, partner with compliant payroll providers, and explore models like Agency Margin Only to mitigate your exposure. At Giant, we’ve helped many MSPs implement this streamlined approach – and we’re ready to support more.
The April 2026 legislation isn’t just a compliance issue - it’s a strategic challenge. MSPs that act now to strengthen visibility, accountability, and payroll integrity will not only stay ahead of the law but also stand out to end clients as dependable, low-risk partners.
