Introduction
The use of umbrella companies within contractor supply chains is changing significantly. These updates will affect both finance contractors and end clients who engage interim talent. With new legislation taking effect from 2026, it is important for both parties to understand what is changing, where risk will sit and how to prepare.

 

What is an umbrella company?
An umbrella company employs contractors on behalf of a recruitment agency or an end client and manages PAYE, National Insurance, statutory deductions and employment rights such as holiday pay. Since the IR35 reforms in 2021, umbrella companies have become a common structure across interim and contract finance roles.

 

Key legislative changes from 2025 to 2027:

1. Joint and several liability from April 2026
   If an umbrella company does not pay the correct PAYE or National Insurance, HMRC will be able to hold other parties in the supply chain liable. This may include the recruitment agency or the end client depending on the engagement model used.
2. Umbrella companies to be regulated as employment businesses from 2027
   Under the Employment Rights Bill, umbrella companies will be regulated under the Employment Agencies Act 1973. This will introduce clearer operating standards, stronger oversight and improved contractor protections.
3. Revised PAYE and NIC rules from April 2026
   The responsibility for ensuring the correct tax is paid will sit with the relevant party in the supply chain. This may shift responsibility away from the umbrella company and towards the agency or the end client.
4. Strengthened worker rights
   Contractors will see strengthened rights around guaranteed hours, holiday pay and fair working practices. These changes will influence how contractors in the finance sector are engaged, paid and supported.

 

What this means for contractors:
Contractors should select umbrella companies that operate transparently and compliantly. Expect more consistent approaches to payroll, clearer deductions and increased monitoring across the supply chain.

It is important to understand how the 2026 reforms could affect take home pay and what additional checks may be introduced. Contractors should also ensure they understand who is responsible for tax compliance within their supply chain and how their umbrella company is accredited.

 

What this means for end clients:
End clients may be held liable for unpaid PAYE or National Insurance in cases where an umbrella company has not operated compliantly. This increases the importance of reviewing current engagement models, understanding which umbrella companies are involved and ensuring the agencies you work with apply robust compliance processes.

Clients should also consider whether alternative engagement methods would reduce risk, particularly for long term or business critical finance roles.

 

Our guidance for contractors and clients:

1. Review the full supply chain
   Understand every step of the chain from contractor to umbrella to agency to client. Identify potential risk points and clarify where responsibility will sit under the updated legislation.
2. Work only with accredited umbrella partners
   Select umbrella companies with recognised accreditation, transparent payroll models and strong internal audit practices.
3. Review contracts and terms of engagement
   Ensure that terms clearly state liability, audit rights, reporting obligations and the provision of payroll information if required.
4. Educate internal teams and contractors
   Hiring managers, finance teams and contractors should understand joint and several liability, revised PAYE rules and the expected changes in 2027.
5. Stay informed through 2026 and 2027
   Regulation in this area will continue to evolve. Taking a proactive approach will reduce risk and support compliant hiring. Keep your eye out for more updates from us on this as changes are announced.

 

Why this matters for the finance sector
The umbrella market has grown rapidly and with it the number of non-compliant schemes. The government aims to create a clearer, safer and more transparent landscape.

For finance functions which play a key role in governance and tax integrity, these reforms carry significant weight. Both contractors and clients will be expected to meet higher standards and demonstrate increased accountability.

 

Summary
These legislative changes will directly impact finance contractors working through umbrella companies and organisations engaging interim and contract finance talent.

HW Finance is here to support both clients and contractors in navigating these changes, ensuring compliant engagements and maintaining access to high quality finance talent.

If you would like to discuss how the 2026 reforms may affect your organisation or working model, please contact HW Finances interim specialist Ryan Johnson on ryanj@hwfinance.co.uk or our compliance specialist Carly Price on carlyp@hwgroup.co