From 6 April 2026, new rules will come into effect regarding PAYE and National Insurance Contributions (NICs) for contractors engaged via umbrella companies. These changes are designed to clarify liability, improve compliance, and reduce tax avoidance in the contingent workforce. For companies hiring contractors or interim staff, understanding these changes is essential to manage risk and ensure seamless operations.

Key Changes: Who Becomes Liable?

• Under the new legislation, if an umbrella company fails to account for PAYE or NICs properly, the liability will shift, potentially onto the recruitment agency or the company hiring (if no agency is involved).

• That means companies that have previously relied on an umbrella provider to manage payroll and tax risk will now need to perform much more robust due diligence.

• For existing labour supply chains, the revised rules cover both new and ongoing contracts, in other words, the change is not limited to new engagements.

The upshot: more organisations will face direct exposure if payroll compliance fails. Agencies and the company hiring must ensure any umbrella company they engage (or engage through) is fully HMRC compliant and transparent.

The Goal Behind the Changes

The primary aim of these reforms is to strengthen compliance and reduce tax avoidance in the contingent labour market. Historically, umbrella companies have managed payroll and NICs with varying levels of transparency, sometimes leaving gaps that could be exploited. By shifting liability upstream to the recruitment agency or the company hiring, the government seeks to ensure that all parties involved in the supply chain take responsibility for PAYE and NIC compliance. Ultimately, the changes are designed to protect workers’ entitlements, improve tax collection, and create a more transparent, accountable labour market.

Implications for Companies Hiring

• Potential Liability

Engaging contractors directly, or through non-compliant umbrellas, could expose your business to PAYE, NIC, and other employment liabilities.

• Risk Transfer

When using a recruitment agency that places contractors through compliant umbrella companies, the umbrella assumes full responsibility for payroll, tax, and employment obligations.

• Worker Protection

Compliant umbrellas provide transparent payroll, accurate payslips, and proper holiday pay, ensuring contractors are paid correctly and legally.

• Supply Chain Transparency

Established umbrellas provide audit trails, real-time tax remittance, and reporting that demonstrates compliance to HMRC.

How Using a Recruitment Agency or Managed Service Can Help

Engaging all contractors via a trusted recruitment partner, such as our service, allows companies hiring to transfer full responsibility for PAYE and NIC compliance. Our supply chain is fully audited, and as an FCSA-approved partner, we adhere to rigorous standards governing compliance, transparency, and the ethical management of contingent workers.

By doing so:

• Liability for payroll, NICs, and related compliance rests with the agency.

• Companies hiring avoid administrative burden and risk associated with direct engagement or using multiple umbrella providers.

• Contractors are paid correctly and on time, while compliance and transparency are guaranteed.

This approach gives companies confidence, reduces operational risk, and allows focus on core business activities without worrying about the complexities of PAYE and NIC rules. 

Conclusion

The April 2026 PAYE and NIC changes place significant responsibility on companies hiring contractors. By engaging contractors through a compliant recruitment partner, companies can transfer all responsibility and risk, ensuring PAYE and NIC obligations are managed correctly and efficiently. This removes administrative burden, safeguards compliance, and allows companies to focus on their core business, confident that contractors are paid properly, and all legal obligations are met.

Murray McIntosh is FCSA Recruiter Partner