Umbrella tax legislation: What recruitment businesses need to know

New laws aimed at cutting tax fraud and non-compliance in the umbrella company sector are due to come into effect April 2026. 

The draft legislation – part of the Finance Bill 2026 – is contained in a new Chapter 11 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). While the Bill hasn’t received Royal Assent yet, it will do in due course. 

As a recruitment agency, you may wonder what any of it has to do with you. After all, you’re not an umbrella company.  

But agencies that operate in labour supply chains alongside umbrella companies could be caught out by the new legislation. Chapter 11 makes recruitment agencies “jointly and severally liable (JSL)” for unpaid tax/PAYE. In other words, if an umbrella business fails to pay what it owes, you could be on the hook.  

Chapter 11 also interacts with Chapter 7 ITEPA 2003, commonly known as agency legislation, in one or two ways you need to know about. 

In the rest of this article, we’ll look at what Chapter 11 aims to achieve, and what recruitment businesses need to do to remain compliant.