On 30 October 2024, HM Revenue & Customs (HMRC) published its policy paper “Tackling non-compliance in the umbrella company market”, marking a decisive shift in the UK Government’s approach to regulating and enforcing compliance within the umbrella company sector.

Since the publication of this paper, HMRC has significantly intensified enforcement action against non-compliant umbrella companies, while simultaneously advancing a major legislative reform due to take effect from April 2026.

This article provides a concise overview of:

• what HMRC is targeting,
• why action is being taken now, and
• the key developments since the policy announcement.

What Is HMRC Targeting?

HMRC’s enforcement activity is focused on several well-established areas of non-compliance within the umbrella company market:

PAYE non-compliance

Failure to correctly operate PAYE and National Insurance contributions (NICs), including under-deduction, non-payment, or inaccurate reporting, resulting in substantial tax losses.

Disguised employment and remuneration arrangements

Use of loan schemes or artificial payment structures designed to reduce employment tax liabilities, often leaving workers exposed to significant retrospective tax assessments.

Mini-umbrella company fraud (Employment Agency)

The fragmentation of labour supply across multiple small companies to abuse NIC Employment Allowance and other reliefs. It is one of the most popular inquiries we at Elaga Accountancy received. We are arranging a contractor working as employee, but under someone else's company. The employment agency provide facilities and pay no PAYE tax, is it safe and alright to use? We are not saying this must be compliant or not compliant. Let us look at some details before answering that.

Circumvention of agency PAYE rules

Use of umbrella company structures to avoid PAYE obligations that would otherwise fall on recruitment agencies under existing agency legislation.

Why Has HMRC Taken Action Now?

HMRC has identified the umbrella company market as inherently high-risk, for several key reasons:

Scale of the market

HMRC estimates that in 2022–23, at least 700,000 workers were engaged via umbrella companies. Of these, over 275,000 workers were involved in non-compliant arrangements — representing close to 40% of the sector.

Significant Exchequer losses

In 2022–23 alone, HMRC estimates that around £500 million of tax was lost through disguised remuneration schemes, with hundreds of millions more linked to mini-umbrella company fraud.

Worker protection

Non-compliant arrangements frequently result in workers receiving unexpected and substantial PAYE and NIC demands years later, despite having little control over the underlying structure.

Market distortion

Non-compliant umbrella companies gain an unfair competitive advantage by operating at lower cost, undermining compliant providers and distorting the labour supply market.

(Source: HMRC policy paper published 30 October 2024, © Crown copyright, Open Government Licence v3.0)

Enforcement Developments Since October 2024

Public naming of non-compliant umbrella companies

HMRC has expanded its statutory lists of tax avoidance schemes and promoters, which now include a growing number of umbrella and payroll companies.

• By the end of 2024, the list included nearly 100 umbrella companies and associated schemes
• Throughout 2025, HMRC has continued to add further umbrella and payroll providers

These publications form part of HMRC’s formal consumer warning and deterrence framework.

(Source: HMRC published tax avoidance scheme lists, © Crown copyright, OGL v3.0)

Enforcement tools being used

HMRC’s approach includes:

• Issuing Stop Notices to promoters
• Raising civil PAYE and NIC assessments for underpaid employment taxes
• Company liquidations and director disqualification in serious cases
• Criminal investigations in the most severe cases (often not publicly disclosed)

While HMRC has not released a single consolidated statistic on closures or penalties, the overall intensity of enforcement has increased markedly.

Key Structural Reform: PAYE Liability Shift from April 2026

The most significant change is not a single enforcement action, but a fundamental reallocation of legal responsibility.

From April 2026:

• Statutory PAYE responsibility will move to:
  the recruitment agency, or
  the end client, where no agency is involved
• Umbrella companies will no longer be the final bearer of PAYE liability

This reform effectively ends the practice of outsourcing PAYE risk to umbrella companies.

Where an umbrella arrangement is found to involve tax evasion or avoidance, liability may rest with the agency or end client, not merely the service provider. The consequences can be severe, including civil recovery actions and potential criminal exposure.

Practical Market Impact of Umbrella Company Crackdown

HMRC’s crackdown is already reshaping the market:

• Umbrella companies face heightened compliance and reputational risk
• Recruitment agencies and end clients must strengthen labour supply chain due diligence
• Workers are less likely to be drawn into non-compliant tax arrangements
• The umbrella company market is expected to contract and consolidate

HMRC’s Direction of Umbrella Companies

HMRC’s strategy is now clear:

A shift from retrospective enforcement against individual umbrella companies towards systemic risk prevention, achieved through:

• reallocation of PAYE liability, and
• public naming and deterrence mechanisms.

The era in which umbrella companies functioned as a buffer for employment tax risk is coming to an end.

Seek Professional Advice

If you are unsure whether your current umbrella company arrangements are compliant, or how the April 2026 PAYE liability changes may affect your business, recruitment structure, or overseas employment model, professional advice should be sought before any changes are made.

Elaga Accountancy advises business es, directors, and overseas employers on:

• PAYE and employment tax compliance
• labour supply chain risk
• permanent establishment (PE) exposure
• worker status and employment classification

We provide umbrella company risk assessments, alternative structuring analysis, and guidance aligned with HMRC’s latest enforcement and policy direction. Let Elaga Accountancy help you clarify responsibility, manage risk, and continue operating compliantly and sustainably.

***Contact us to learn more.

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