New Umbrella Tax Rules

If you’re a contractor or freelancer using an umbrella company, big changes are coming. The government has just unveiled new draft tax rules aimed at clamping down on £2.85 billion in unpaid tax and it’s agencies, not contractors, who will be in the firing line.

The good news? Contractors won’t be liable for any unpaid umbrella taxes. But the way agencies and umbrellas operate could change a lot from April 2026.

Why the new rules matter

Umbrella companies have been under scrutiny for years. While many operate fairly, too many have been dodging tax, leaving workers with surprise tax bills and undermining the whole market.

The government’s solution? Shift the responsibility for unpaid PAYE tax from umbrellas onto recruitment agencies (and in some cases, end clients).

That means if an umbrella company doesn’t pay HMRC correctly, the agency that hired you could be left footing the bill.

Expert insight: Dave Chaplin

Dave Chaplin, CEO of ContractorCalculator and a valued partner of Broadbench, explains it clearly:

“HMRC have demonstrably failed for decades to enforce tax compliance in the umbrella sector, so it has chosen to pass the enforcement baton to agencies, by providing them with a brutal incentive to make sure the correct tax is paid.

From 6 April 2026, if an agency chooses not to run their own payroll and instead passes a worker’s gross earnings to an umbrella, the agency will be responsible for any tax shortfalls.”

In other words, contractors won’t take the hit, but agencies will be forced to rethink how they engage with umbrellas.

What contractors need to know

• You’re not liable. These new rules target agencies and umbrellas, not individual contractors.
• Umbrellas aren’t going away. Compliant umbrellas will still operate — in fact, the legislation is designed to weed out the dodgy ones.
• Agencies may change their processes. Some could bring payroll in-house or pay HMRC directly. Contractors might notice small admin differences, but no tax liability will fall on you.
• The market could tighten. With agencies now carrying the risk, expect more due diligence on which umbrellas they work with.

Timeline

• Draft legislation is already published.
• It will be written into the Finance Bill 2025–26.
• The new rules kick in from 6 April 2026.

Broadbench’s view

At Broadbench, we work with trusted partners like Dave Chaplin to keep contractors informed and protected — not just around tax and umbrella changes, but also with mortgage advice and personal protection planning.

Contractors often face uncertainty when rules shift, but with the right guidance, you can:
✔️ Stay compliant
✔️ Keep your finances safe
✔️ Secure mortgages and protection policies that fit your contracting lifestyle

Final word

For contractors, the message is simple: don’t panic. You won’t be chased for unpaid umbrella taxes. The responsibility lies with agencies and umbrellas.

But as always in contracting, the landscape is shifting — so stay alert, and lean on experts like Broadbench and our partners to keep you one step ahead.

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