And finally...Umbrella reforms are in!

After years of consultation and speculation, the hotly anticipated draft umbrella legislation has been released, with measures due to take effect 6th April 2026. But what does this mean for the umbrella industry, both today and once the legislation comes in?

Thankfully, voices of the industry were heard by the government and umbrella companies will continue to retain employment of the individuals and have responsibility for operating PAYE.

What does the legislation do?

It introduces a new chapter 11 into ITEPA, implementing joint and several liability. This means that that both umbrella and a “relevant party” in the contractual chain will equally be liable for the PAYE liabilities of the umbrella company.

In practice, this means:

• Where the umbrella is contracting directly with a client, the client will be jointly and severally liable.
• Where there is an agency in the chain between umbrella company and client, the agency will be jointly and severally liable.
• Where there are multiple agencies in the chain between umbrella company and client, the legislation operates in the same way as s44 ITEPA (2003) in that it places the agency closest to the client as the relevant party to be jointly and severally liable.

When does the legislation apply?

Effectively, the legislation says that where an individual is employed by a third-party company (which they don’t have any material interest in) and provides services to a client via that third party company, then the legislation will apply. That third-party company will be an umbrella company for the purposes of the legislation.

It specifically excludes situations where s44 ITEPA, IR35 and MSC legislation may apply, meaning that this draft legislation should not apply to PSCs or compliant self-employed contracting.

The legislation does, however, contemplate other non-traditional umbrella-type arrangements. In our opinion, it would equally catch mini umbrellas, hybrid employment, joint employment, employee loan arrangements and employee benefit trust arrangements.

What next?

It cannot be emphasised enough that this is draft legislation, and while we do not anticipate any hugely fundamental changes between now and its implementation, anyone who has been around long enough will remember how significantly different the Managed Service Company legislation was between draft stage and final implementation. There will nonetheless be sufficient time for the Government to make refinement and revision before implementation next year.

That being said, regardless of any amendment or refinement, the message is clear: only the complaint will survive. Those in the contractual chain will need to ascertain whether they are the party who will be jointly and severally liable alongside the umbrella and will almost certainly seek assurances and evidence of compliance.

Unscrupulous umbrellas and schemes that seek to circumvent tax will doubtlessly be unable to demonstrate compliance to the satisfaction of those they contract with (who will now hold joint liability).

For those umbrella companies who have continually invested in compliance, and those agencies/clients who have taken care to carry out due diligence on their supply chain, there should be little to fear from the new legislation. The PAYE responsibilities needed to be complied with are the same as they always were – the only change coming in is where any potential liability may sit.

What will almost definitely change is the amount of information those contracting with umbrellas will seek in terms of compliance assurance. This will need to be contractual documentation alongside evidence of HMRC compliance, whether this is carried out by recognised industry “auditors” and payslip checking tools or an in-house managed system and should not fundamentally make a difference as long as demonstrable evidence of compliance is given.

At Markel Tax, we have been advising the contracting market for over 20 years on all matters related to self-employment, IR35 and umbrella companies. We already have popular tax enquiry and losses insurance products designed for IR35, self-employed status and s44 and will be working with our underwriters to look to develop a similar product for umbrella companies and their clients to safeguard against the future impact of this legislation.