HMRC has released new guidance for umbrella companies, outlining best practice through 'actions' to ensure compliance with all regulations and statutory requirements. It is designed to help organisations provide a responsible, transparent service, including through the handling of employee care and interactions with recruitment agencies.

Whilst many of the actions are straightforward, such as not to engage in mini umbrella company fraud or tax avoidance, others may provide a useful prompt.

In this blog, we summarise what the new guidance covers.

Responsible business

Regulation is on its way for the umbrella company sector from April 2026, making employment agencies legally responsible for accounting for PAYE when supplying workers through umbrella companies.

Furthermore, by bringing umbrella companies within the legal definition of an employment business through the Employment Rights Bill, which is making its way through Parliament, these companies are likely to become subject to further regulation in future.

With so much change on the horizon for this previously unregulated sector, it is a critical time for umbrella companies to ensure their operations are fit-for-purpose and future-proof.

HMRC's latest guidance is a resource to support this, by outlining actions that umbrella companies should take to demonstrate good practice. It is also a resource for other organisations in the labour supply chain when carrying out due diligence processes. It addresses issues that have been repeatedly raised by stakeholders in the sector.

Accreditation is the chosen avenue for many umbrella companies to demonstrate that they are a fully compliant and ethical business. The Payroll Compliance Authority (PCA) is helping honest umbrella companies to demonstrate their compliance through a forensic assurance audit that addresses the 'actions' set out in this latest guidance and ensures that organisations that pass the PCA audit are operating in accordance with all UK employment legislation and taxation guidelines, among other benefits.

Legal compliance

The guidance runs through the importance of demonstrating that an umbrella company is run efficiently by individuals who understand their responsibilities and can be easily identified and contacted. Frequent changes to an organisation's leaders can be a sign of legal non-compliance. Financial viability is also paramount, including demonstrating appropriate levels of insurance.

In order to meet all statutory requirements, the guidance provides access to various legal sources, so companies can check they meet their responsibilities in relation to workplace pensions, National Minimum Wage and other statutory rights. It also sets out various actions that umbrella companies need to take, such as carrying out right to work checks, providing payslips and contracts of employment and staying up to date with relevant changes to requirements.

When calculating and processing employees' pay, the guidance serves as a reminder of best practice to ensure that deductions are made accurately, transparently, and in a timely manner. It recommends having an efficient 'starter and leaver' process in place to ensure that correct tax codes are applied and any accrued holiday is paid out.

Another important element of running a compliant and honest umbrella company is ensuring that they only engage with recruitment agencies and end clients that are equally responsible, for example, in ensuring that pay arrangements follow National Minimum and National Living Wage.

Providing a good service

As well as being legally compliant, HMRC's guidance includes many actions that umbrella companies can take to ensure they are open, honest and supportive of their employees, as well as the employment businesses they work with.

Many of the actions listed in this section revolve around clear communication with employees to ensure they fully understand the circumstances of their employment and know how to raise any issues or grievances.

For example, to demonstrate transparency for employees, umbrella companies should clearly set out contracts and all other paperwork including relevant codes, reference numbers and figures, explaining rates of pay and margins and how these might change. Providing resources such as annotated payslips on company websites can help employees understand how their gross pay has been calculated.

Rounded employee care also includes making 'reasonable adjustments' for those who may need additional help, for example, employees whose first language is not English.

How umbrella companies perform and share the particulars of their operation also impacts recruitment agencies and end client businesses. The guidance recommends that umbrella companies do all they can to help the wider labour supply chain carry out due diligence and meet their own legal obligations. This includes being fully transparent about credentials, having up to date records, and efficient systems for verifying and sharing all necessary employment information with these businesses.

The value of accreditation

Having robust systems in place that cover the full employment cycle will become increasingly important as the clock ticks on regulation.

Seeking accreditation is an effective way for umbrella companies to demonstrate compliance both to workers and other stakeholders in the sector. Through a thorough third-party audit process, undertaken by one of the 'big four' accountancy firm, the PCA provides a benchmark by which to identify fully compliant umbrella companies.

The PCA audit typically takes three months and comprises a minimum of 150 elements, including independent and confidential validation, and is designed to provide a comprehensive overview of a payroll company's organisational structure, operational procedures and financial processes, including all documentation. Successfully passing this audit will ensure that HMRC's 'actions' outlined in this latest guidance are met.

To read HMRC's full guidance, first published on 8 April 2025, click here.