Count the heads on one of your sites on a Tuesday morning. Somewhere in that number — two labourers, a traffic marshal, a drylining gang — there will be people who don’t work for you, and don’t work for the agency you rang either. They’re employed by a third firm you’ve never spoken to and couldn’t name, whose entire job is to run their payroll. That firm is called an umbrella company.
An umbrella company is an employer of convenience. The agency finds the worker and bills you; the umbrella employs the worker, issues the payslip and deals with HMRC. It handles PAYE — pay as you earn, the system where income tax and National Insurance come out of wages before the worker ever sees them. In principle, none of this touches you. You pay the agency. The agency pays the umbrella. The umbrella pays the worker and the taxman.
Except some umbrellas never pay the taxman. They deduct the tax from the worker’s pay, keep it, fold the company and reappear a month later under a new name. HMRC has spent years chasing this game and too often catching companies that had already vanished.
So the rules changed. From 6 April this year, if an umbrella company anywhere in a labour supply chain fails to hand over the PAYE it owes, HMRC no longer has to chase the ghost. It can recover the full amount from someone else in the chain. The mechanism is called joint and several liability — legal shorthand for “everyone named is on the hook for all of it, and we’ll collect from whoever still has a bank account.”
Who the someone else is
The law points first at the agency — specifically, the one that holds the contract with the business the workers actually turn up for. In this story, that business is you, and the rules call you the end client. If your labour comes through a UK agency, the shortfall is that agency’s problem before it is yours. But if there’s no agency in the chain — if your firm contracts directly with the payroll outfit — then the party HMRC comes to is you. And plenty of construction firms sit in exactly that position. The gang came recommended. Somebody said “they’re all through such-and-such payroll.” The invoice arrives from a company that is, in law, an umbrella. As far as these rules are concerned, you’re the agency now. And the rules apply to chains that already existed in April, not just new ones.
There’s a construction-shaped wrinkle on top. A lot of site labour isn’t paid through PAYE at all but through the Construction Industry Scheme — CIS — the arrangement where a contractor deducts a slice of tax from a self-employed subcontractor’s payment and sends it to HMRC. Some payroll companies engage every worker as self-employed under CIS and will tell you the new rules therefore don’t apply. Careful. The legislation also covers what HMRC calls purported umbrella companies — outfits that look and behave like an employer, or that engage workers as self-employed when the reality of the arrangement says employee. If a reasonable person would read the setup as umbrella employment in a different jacket, the liability rules can apply anyway. The label on the invoice doesn’t settle it.
And the uncomfortable part: there is no due-diligence defence written into this law. Checking your labour chain does not make the liability disappear if an umbrella in it defaults. What checking does is tell you which chains you’re actually standing in — and which to step out of before the bill exists rather than after.
The question you probably can’t answer
Here is the operational bit, which is the part I actually care about. If HMRC wrote tomorrow about the labour on a job you finished in May — who supplied each worker, who employed them, who paid them — could your office answer it? In most firms I audit, the answer would be assembled from an agency’s terms signed in 2023, a stack of invoices and whatever the site manager remembers. The workers are visible on site every morning. The chain that pays them is invisible from your office.
That was always untidy. Since April, it’s a live financial exposure with your firm’s name potentially at the end of it.
A register, not a platform
The fix is small and boring, and deliberately so. Not an HR platform. Not a compliance consultancy on a retainer. A labour-chain register: every labour supplier your firm uses; the chain behind each one — which agency, which umbrella, confirmed in writing; the evidence you asked for and the date you asked; a payslip spot-check twice a year; and a flag that trips when paperwork starts mentioning a company that isn’t on the list, because chains change without anyone telling the client. Tie it to your site attendance and every worker on every job maps to the chain that pays them. Setting up a supplier takes ten minutes. Keeping it current takes seconds.
That isn’t software for its own sake. It’s the difference between answering HMRC’s letter in an afternoon and reconstructing eighteen months of labour history from emails.
Where this doesn’t apply
If everyone on your sites is either on your own payroll or a genuine subcontractor running a genuine business — own tools, own insurance, other clients — these rules aren’t aimed at you, and you shouldn’t buy anything. The same if you take two temps a year through one big-name agency: a folder and a diary note will do fine. The exposure lives where firms lean on labour-only gangs and payroll outfits, and it grows with every link in the chain you didn’t choose yourself.
The April rules didn’t create the fog around agency labour. They put a price on it. If you’d like to know how much of your labour your firm can actually account for, get in touch.