Earlier this year, the draft 2025 Finance Bill introduced significant legislation aimed at tackling tax non-compliance within labour supply chains. For marketing and media agencies, which often rely on freelance talent and third-party staffing solutions, these reforms could significantly impact how contractors are engaged and paid.
A key proposal is the introduction of joint and several liability for PAYE income tax and Class 1 National Insurance Contributions (NICs). This means agencies could be held financially responsible for unpaid employment taxes – even if the failure originates with an umbrella company or intermediary.
The Government expects to recover £2.85 billion in unpaid tax between 2025–26 and 2029–30, with £895 million annually once the measures are fully in force from April 2026.
A financially significant reform
Labour supply chains, especially those involving umbrella companies, have long presented challenges for HMRC. In some cases, non-compliant umbrella companies have failed to correctly account for PAYE income tax and NICs, resulting in tax losses and exposing workers to unexpected liabilities.
To address these issues, the Government is proposing a new legal framework that will hold recruitment agencies and end clients jointly responsible for ensuring correct tax payments.
Key changes agencies should be aware of:
Joint and several liability introduced (from April 2026)
Agencies and other parties in the worker supply-chain will be jointly and severally liable for unpaid PAYE and NICs made via umbrella companies. Further guidance is expected on how HMRC will determine who will be held responsible for paying any outstanding PAYE and NIC liabilities where these are not paid by the agency.
Targeting ‘purported umbrella companies’
The legislation introduces a new legal concept to address entities that falsely present themselves as compliant umbrella companies while deliberately evading employment taxes. These schemes often involve misclassifying workers or rerouting payments to avoid PAYE and NICs.
Strengthened compliance obligations across the agency supply chain
Agencies engaging with umbrella companies will be required to implement enhanced due diligence, including:
- Rigorous vetting of labour supply intermediaries.
- Contractual clauses clearly outlining tax responsibilities.
- Ongoing monitoring of payroll and RTI submissions.
Expanded HMRC enforcement powers
The joint and several liability model significantly enhances HMRC’s ability to recover unpaid taxes from any party in the supply chain – including creative agencies, event organisers, and brand sponsors. This mirrors the Off-Payroll Working Rules (IR35), which previously impacted Personal Service Companies (PSCs).
Importantly, genuine PSCs, will not be affected unless structured to deliberately avoid employment taxes.
Strategic objectives of the reform
The proposed changes are part of a wider government initiative to promote transparency and fairness in the labour market. Its goals include:
- Combating deliberate tax fraud in recruitment and engagement structures.
- Protecting workers from unexpected tax liabilities.
- Creating a level playing field for compliant service providers.
What the proposed changes will mean
The proposed changes are likely to have a wide-reaching impact on how businesses engage with umbrella companies and manage their labour supply chains:
For businesses using recruitment agencies:
- Review and audit current use of umbrella companies for the provision of workers.
- Reassess overseas recruitment pipelines, especially where payment structures are complex.
- Consider bringing more roles in-house to retain control over PAYE and NIC compliance.
For umbrella companies:
- Full transparency and demonstrable compliance will be essential to retain clients in the increasingly risk-averse agencies sector.
- Be prepared to provide documented evidence of PAYE operations, including RTI submissions and payslips.
What agencies should do now
Although April 2026 may appear distant, early preparation is crucial. Suggested steps include:
Conduct a comprehensive supply chain audit
- Identify all instances of umbrella usage.
- Establish strict due diligence criteria for engaging intermediaries.
- Assign clear internal responsibility for managing these relationships.
Coordinate cross-functional alignment
- Ensure HR, procurement, finance, and legal teams understand their obligations.
- Promote organisation-wide awareness of compliance requirements.
- Provide training where necessary.
Strengthen record-keeping protocols
- Maintain detailed documentation of labour supply arrangements and payroll operations – accurate records will be vital during HMRC reviews.
Seek formal assurance from umbrella companies
- Request written confirmation of PAYE compliance.
- Obtain supporting evidence, such as RTI submissions, payslips, or payment schedules.
Conclusion
This proposed reform marks a decisive shift in how tax compliance is managed across the creative and media sectors. By introducing joint and several liability, the Government aims to restore fairness, protect workers, and ensure all parties in the supply chain meet their tax obligations. Businesses that act early to strengthen their compliance will be best positioned to navigate this evolving regulatory landscape.
Contact us
To understand how these changes may impact your organisation, or to receive tailored compliance support, please contact Nick Bustin, Employment Tax Director, or a member of our Employment Tax team.
