The UK government is introducing significant reforms to address non-compliance in the umbrella company sector. These changes will notably impact recruitment agencies and end clients, placing new responsibilities and liabilities on them. Understanding these developments is crucial for all parties involved in the labour supply chain.
Shifting Tax Compliance Responsibilities
Starting in April 2026, the responsibility for Pay As You Earn (PAYE) tax compliance will shift from umbrella companies to recruitment agencies and, in some cases, end clients. This means that if an umbrella company fails to meet its tax obligations, the agency or client engaging the worker will be held accountable. This measure aims to ensure that all entities in the labour supply chain conduct thorough due diligence when selecting umbrella companies.
Joint Liability for Non-Compliance
The forthcoming legislation introduces joint liability provisions, making recruitment agencies and end clients jointly responsible for any non-compliance by the umbrella companies they engage. This includes liabilities related to unpaid taxes and violations of workers’ rights. The intent is to encourage agencies and clients to exercise greater oversight and ensure that the umbrella companies they work with adhere to legal and ethical standards.
Implications for Recruitment Agencies
Recruitment agencies must take proactive steps to adapt to these changes:
- Conduct Comprehensive Due Diligence: Thoroughly vet umbrella companies before engagement, verifying their compliance with tax and employment laws.
- Establish Robust Compliance Processes: Implement internal procedures to monitor and document the compliance status of all umbrella companies in the supply chain.
- Maintain Detailed Records: Keep comprehensive documentation of all labour arrangements to demonstrate compliance and facilitate audits if necessary.
By taking these measures, agencies can mitigate risks associated with the new joint liability framework.
Responsibilities of End Clients
End clients also face increased accountability and should:
- Demand Transparency: Require clear information about the payment and employment terms of contractors supplied through umbrella companies.
- Verify Compliance Certifications: Ensure that all parties in the workforce supply chain possess appropriate compliance certifications and adhere to legal standards.
- Engage in Ongoing Monitoring: Regularly review the practices of recruitment agencies and umbrella companies to ensure continued compliance.
Ignoring these responsibilities can result in legal and financial repercussions for end clients.
A Cultural Shift Toward Accountability
These reforms represent a broader movement toward enhanced responsibility and oversight in the recruitment ecosystem. The goal is to create a fairer environment where workers’ rights are upheld, tax obligations are met, and ethical practices are standard. All entities involved in hiring must recognize and fulfil their legal obligations and ethical duties.
Conclusion
The upcoming legislative changes significantly alter the landscape for recruitment agencies and end clients. By proactively enhancing due diligence and compliance processes, these entities can navigate the new regulations effectively, contributing to a more transparent and equitable labour market.
For expert guidance on adapting to these regulatory changes and ensuring compliance within your labour supply chain, contact Don Pollock, Head of Contract Recruitment at Identifi:
- Phone: 01908 889440
- Email: don.pollock@identifiglobal.com
Don Pollock offers specialized advice to contractors, recruitment agencies, and clients, assisting them in understanding and implementing necessary compliance measures in response to the evolving regulatory landscape.
