All change
If you are involved with the UK’s temporary workforce, you are likely aware that significant changes are coming in April 2026, following the much-publicised Consultation on Tackling Non-compliance in the Umbrella Sector. We have to hope that these changes are going to be for the better, but as usual, the devil is in the detail and we won’t see draft legislation, probably until the summer.
But it’s not just compliance legislation that has changed recently.
The impact of the first Labour budget in over 14 years, and the first delivered by a female Chancellor of the Exchequer, has now been understood and absorbed by the umbrella sector. There are changes to Employer’s National Insurance (NI) rates, and notably, the threshold at which Employer’s NI becomes payable has also changed.
Additionally, the increase in the Employment Allowance from £5,000 to £10,500 will have implications, especially for the often murky world of mini-umbrellas. (That’s another article for another day).
Time will tell what impact these changes will have in the real world but they are unlikely to have a positive impact on contractors’ pay.
Regulation in the umbrella sector
Currently, the responsibility for ensuring that tax and National Insurance are paid correctly by umbrella companies lies with the umbrella companies themselves. This has resulted in recruitment agencies and contractors often working with intermediaries that may not follow compliant practices. Many of these “dodgy” umbrellas have operated aggressive tax planning schemes that, while increasing take-home pay for workers, expose contractors to potentially large tax liabilities.
Starting in April 2026, this will change—the responsibility for ensuring the correct amount of tax and National Insurance is paid on umbrella contractors’ wages will shift to the agencies.
At the date of writing, we don’t know the exact details of how this will be legislated. Will agencies be forced to employ workers themselves and account for PAYE? The way that communication from Government has been written so far suggests not – after all, if that were the case there would be no requirement for umbrella companies and legislation to regulate them would be moot.
The Government state that agencies can continue outsource to umbrella companies but there is still uncertainly around how things will work in practice. One would hope that HMRC would rather regulate a few hundred umbrella providers that 40 thousand recruitment agencies. Seems logical to us…..
Due diligence
It has always been essential for agencies to conduct their own due diligence on the umbrella companies they engage with, and this practice will continue, but with increased rigor. Several paid accreditations can provide some reassurance that an umbrella company is compliant, at least at the time of assessment. However, high-profile cases have recently highlighted that some “bad actors” in the sector have managed to engage in tax avoidance while still holding these accreditations.
To ensure that an umbrella company operates correctly, agencies currently have two options:
How can Kanopi help you navigate the changes
Kanopi Contract Services provides fully compliant umbrella and CIS payroll services to UK agencies. We already hold Chartergatge RISC certification, and while we are in the process of obtaining certification that will also provide real-time auditing of our payslips, payments and processes, we are already having conversations with recruitment agencies looking to mitigate their risks in this “new world.” Our aim is to become a genuine partner to your business.
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