Understanding the upcoming compliance changes and their impact on the employment agency supply chain
The Government has confirmed that new legislation targeting umbrella companies will come into effect in April 2026, following years of scrutiny and consultation. These changes are designed to address long-standing issues in the umbrella market – including non-compliance, tax avoidance, and worker exploitation – and will significantly affect the employment agency supply chain, particularly those engaging contract workers via umbrella arrangements.
In this blog, we explain what the new regulations involve, what they mean for recruitment agencies, end clients, and contractors, and how your organisation can prepare in advance.
What Are the New Umbrella Regulations?
The new rules aim to improve transparency and accountability in the use of umbrella companies by:
- Introducing a statutory definition of an umbrella company for the first time
- Mandating due diligence across the supply chain – including recruitment agencies and end clients
- Making it illegal to enter into contracts with non-compliant umbrella companies
- Requiring agencies to report details of umbrella arrangements to HMRC
- Cracking down on "skimming", mini-umbrella fraud, tax avoidance schemes, and non-payment of holiday pay
The Government has also committed to expanding HMRC’s powers to penalise agencies and end clients that fail to take reasonable steps to ensure compliance.
How Will This Affect the Employment Agency Supply Chain?
The biggest impacts will be felt across temporary and contract recruitment, where umbrella usage is most common. Key implications include:
1. Increased Compliance Burden for Agencies
Agencies will be held responsible for ensuring any umbrella company they work with is compliant. This means:
- Carrying out robust due diligence checks
- Keeping records of payroll and tax compliance
- Avoiding unregulated or promoter-linked schemes
Failure to comply could result in financial penalties and reputational damage.
2. Changes in Supply Chain Dynamics
Some end clients may become more cautious about using umbrella workers or may push for more PAYE direct contracts to avoid risk exposure. This could:
- Reduce demand for certain umbrella models
- Shift more responsibility back to agencies or clients
- Lead to the collapse or consolidation of smaller or non-compliant umbrella providers
3. Impact on Contractors
Contractors may face:
- Fewer umbrella options
- Increased vetting or administrative requirements
- Tighter controls over take-home pay projections and deductions
However, in the long term, compliant contractors should benefit from greater protection, clearer holiday pay entitlements, and less exposure to disguised remuneration schemes.
How Scantec Is Positioned to Respond
Scantec already operates with a fully audited and regularly reviewed umbrella supply chain, working only with established, compliant, and ethically managed providers.
As part of our compliance infrastructure, we already utilise SafeRec, an independent audit and payslip verification platform, to monitor and validate all umbrella worker payments. This ensures that every payslip issued by our umbrella partners is audited in real-time, confirming that tax, National Insurance, and holiday pay are correctly processed and reported. SafeRec provides us – and our clients – with ongoing assurance that contractors are paid fairly, legally, and transparently.
This proactive approach means we are well positioned to manage the introduction of the 2026 legislation with minimal disruption to our contractors, clients, or internal operations. Our current processes are already aligned with the direction of HMRC’s compliance framework.
We continue to:
- Monitor all supply chain partners through structured due diligence and performance reviews
- Maintain clear documentation and audit trails
- Use SafeRec to audit and validate umbrella worker payslips
- Work closely with clients to ensure joint compliance and minimal operational impact
Final Thoughts
The new umbrella regulations coming into force in April 2026 mark a significant shift in the regulation of contingent labour supply. While the rules aim to protect workers and eliminate bad practice, they will increase the compliance burden on agencies and end clients alike.
At Scantec, our long-standing commitment to supply chain integrity means we are already ahead of the curve. Clients and contractors working with us can be assured of a compliant, carefully managed umbrella setup – now and in future.
We will continue to monitor the evolving guidance and provide updates as they emerge. If you would like support in reviewing your umbrella arrangements or understanding your responsibilities, please get in touch.
