Understanding your obligations under Chapter 11 ITEPA 2003
New legislation taking effect on 6 April 2026 changes the compliance landscape for every recruitment agency that works with umbrella companies. Under Chapter 11 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), HMRC can now hold recruitment agencies — and potentially end clients — jointly and severally liable for unpaid PAYE and National Insurance Contributions (NICs) if an umbrella company in their supply chain fails to pay them correctly.
If you work with umbrella companies, this affects you directly. Here is what you need to understand.
Understanding the legislation
‘Joint and several liability’ means that HMRC can pursue any party in the supply chain for the full amount of unpaid tax — the umbrella company, the recruitment agency, or potentially the end client. It does not matter who was directly responsible for the failure. If the umbrella company does not pay, HMRC can come to you.
There is no statutory defence under these rules. This is an important point. Even if an agency carries out thorough compliance checks, that process does not eliminate legal exposure. Mitigating the risk as far as possible is therefore necessary. Due diligence is best practice and it is what HMRC expects to see, but it does not create a formal protection in law. The liability can still apply where tax is unpaid.
The rules are not limited to cases of fraud or deliberate evasion. They apply wherever an umbrella company fails to meet its PAYE and NIC obligations — for whatever reason.
What this means for your agency
The most significant shift here is the direct financial exposure it creates for recruitment agencies. If a non-compliant umbrella company is in your supply chain and fails to pay its taxes, your agency could be asked to cover that shortfall. You do not need to have done anything wrong for HMRC to pursue you.
This makes the choice of umbrella partner a business risk decision, not just an administrative one.
Under these rules, agencies should be thinking about three things in particular.
Due diligence on umbrella companies. Agencies need to take a closer look at the umbrella companies they work with. What accreditations do they hold? How are their payroll processes audited? Is there independent verification that their tax obligations are being met? These are not tick-box questions — they are the foundation of your compliance position.
How information is shared. Incomplete or delayed information passed to an umbrella company can contribute to payroll errors. Agencies have an obligation to ensure that the information umbrella companies need to operate correctly is accurate and provided on time.
Commercial arrangements. Agencies should review their contracts with umbrella companies carefully. Arrangements that impose excessive rebates, long payment terms, or other costs on umbrella companies can put pressure on their ability to meet tax obligations. That pressure can become your problem under these rules.
What to do now
The 6 April 2026 effective date means the start of an ongoing process to understand your supply chain partners. Here are the steps agencies should consider taking.
Review every umbrella company relationship in your supply chain on an ongoing basis. If you have not done so recently, now is the time to assess each provider’s compliance credentials and audit practices.
Check your commercial arrangements for any terms that could unnecessarily burden your umbrella partners. Costs that seem routine on paper can create real strain on their margins and their ability to pay HMRC on time.
Ask providers for current evidence of their accreditation and compliance processes. Accreditation alone is not a legal defence, but it is a meaningful indicator of how seriously a provider takes its obligations and will help to reduce the likelihood of a debt falling on you to pay.
If you are uncertain whether your current arrangements meet the standard HMRC would expect, speak with a specialist as soon as possible.
How Brookson can help
Brookson has been working with recruitment agencies on exactly these challenges. We help agencies understand the new requirements, review their supply chain arrangements, and put best practice compliance processes in place.
Our credentials reflect that commitment. Brookson is a certified member of SafeRec as well as a founding member of the Freelancer and Contractor Services Association (FCSA) and holds all three of its accreditations (Umbrella, CIS and PSC Accountant). Those accreditations are not self-assessed — they are verified through annual audits carried out by specialist independent employment lawyers and Big 4 accountants. Being certified by SafeRec, provides real-time payslip checking to ensure tax is calculated appropriately, RTI submission reconciliation to ensure tax payments are being confirmed to HMRC, and monthly Government Gateway checks to confirm that tax payments are being made correctly and on time. These ongoing checks fall alongside regular business monitoring by an external law firm to ensure that business process mitigate risks to your agency and maintain a high standard of compliance.
These are not just credentials for a brochure. They are operational processes that exist to give agencies confidence that the umbrella company in their supply chain is doing what it should be doing. When you work with Brookson, you can point to that evidence. That will not remove your legal exposure entirely — nothing does under these rules — but it demonstrates the kind of active, informed due diligence that responsible agencies are expected to carry out.
If you would like to talk through what these changes mean for your agency, we are here to help.
The information in this post does not constitute legal advice and is provided for general informational purposes only. Readers should seek independent legal advice regarding their specific circumstances. Brooskon bears no responsibility for the accuracy, legality, or content of any external sites linked within this post.