Recruiters, don’t PAYE the price: Everything you need to know about changing legislation
Recruiters, brace yourselves. Major changes to PAYE and umbrella company legislations are on the horizon. From April 2026, recruitment agencies and end clients could face serious legal and financial risks if they fail to comply with new PAYE regulations. With HMRC cracking down on non-compliance, ignoring these changes isn’t an option, fines, audits, and lost business could be on the line.
This proposed change aims to:
The good news? You don’t have to scramble at the last minute. This guide breaks down exactly what’s changing, why it matters, and how you can stay compliant without slowing down your recruitment operations.
Why are PAYE and umbrella regulations changing?
The UK government has been tightening rules around tax compliance, worker rights, and umbrella company practices to crack down on tax avoidance, disguised employment, and payroll fraud.
Over the last few years, we’ve seen:
- IR35 reform shifting tax responsibility to agencies and end clients.
- The Finance Act introducing tougher enforcement measures.
- The rise of umbrella company scrutiny following reports of unlawful deductions, disguised remuneration schemes, and lack of worker rights.
Now, new legislation is set to reshape PAYE payroll and umbrella employment even further and recruiters need to act fast.
10 things recruiters must know about the upcoming legislation changes
1. Agencies will face more liability for umbrella payroll compliance
HMRC is making it clearer than ever: recruitment agencies cannot turn a blind eye to non-compliant umbrella companies. If your agency engages with an umbrella provider that operates tax avoidance schemes, misclassifies workers, or fails to meet PAYE obligations, you could be held liable.
What this means for recruiters:
- You must vet all umbrella providers you work with.
- Agencies could face financial penalties if their umbrella suppliers fail compliance checks.
- Your clients will expect assurances that contractors are engaged legally.
2. PAYE compliance checks will be more stringent
HMRC is introducing more automated compliance checks to flag underpayments, misclassified employment, and incorrect tax filings.
Recruiters will need to:
- Be prepared for more frequent audits and compliance spot checks.
- Ensure real-time PAYE tax deductions are accurate.
- Keep payroll records fully transparent and up-to-date.
Recruiters should ensure their payroll software integrates real-time compliance tracking and that their processes align with HMRC's increased scrutiny. Conduct internal audits before HMRC does.
3. Umbrella companies must provide clear payslips
One of the biggest worker complaints? Confusing payslips with hidden deductions.
The government is cracking down on this. New legislation will require umbrella companies to provide:
- Full breakdowns of deductions, including tax, NI, and fees.
- Transparency over holiday pay entitlements
- Clear records of all employment costs.
If your agency is placing workers through umbrellas, you’ll need to ensure payslip clarity, or risk disputes.
4. New holiday pay legislation in the UK
Many umbrella companies withhold holiday pay from contractors, keeping funds that should be paid to workers. The new holiday pay legislation in the UK ban this practice and requires contractors to receive full holiday pay entitlements.
What agencies need to do:
- Work with umbrellas that pay holiday entitlements properly.
- Audit payslips to ensure contractors aren’t being short-changed.
- Educate contractors on how to spot unlawful deductions.
5. Off-payroll working (IR35) is still a major risk
IR35 reforms in the private sector placed the responsibility on agencies and end clients to determine tax status. The upcoming legislation will further enforce compliance checks on recruitment agencies and umbrella firms.
If your agency misclassifies a contractor under IR35, you could face HMRC penalties.
6. HMRC is targeting mini umbrella companies (MUCs)
Mini umbrella company fraud has been on HMRC’s radar for years. Agencies working with these schemes – even unknowingly – risk non-compliance fines.
How to protect your business:
- Work only with reputable, audited umbrella providers.
- Vet supply chain to ensure no MUC involvement.
- Educate clients and contractors on the red flags of tax avoidance schemes.
7. PAYE Payments must be processed in real time
The push for Real-Time Information (RTI) reporting means payroll must be 100% up to date, with tax deductions sent directly to HMRC.
Delays or inaccuracies could result in fines and worker disputes.
8. New enforcement powers for HMRC
HMRC is expanding its ability to penalise non-compliant umbrella companies and agencies, including:
- Stricter audits
- Heavier fines for non-compliance
- Potential legal action against directors of non-compliant agencies
Agencies must be proactive, compliance is no longer optional.
9. Client expectations are changing
End clients are becoming more risk-averse when it comes to payroll compliance. Many are now demanding proof that recruitment agencies use compliant payroll providers. If your agency can’t demonstrate payroll integrity, you risk losing clients to competitors who can.
Agencies should provide compliance reports proactively to clients rather than waiting for them to ask. This will strengthen trust and help you win more business.
10. The wrong payroll software could hold you back
Recruiters dealing with PAYE and umbrella workers need a payroll system that can handle real-time compliance, tax deductions, and transparent payslips, without creating more manual workarounds.
Manual payroll processes won’t cut it anymore. If your payroll system isn’t built for compliance, it’s putting your agency at risk.
Access Pay and Bill supports complex payrolls by automating compliance, tax deductions, real-time reporting, and audits, so you can stay ahead of regulations before it’s too late. Keep your agency compliant, avoid costly fines, and focus on growing your business with confidence.
Partner with a payroll system you don’t have to think twice about. See Access Pay and Bill in action.
How to stay compliant without slowing down
Legislations impacting recruitment are ever-changing, but your agency doesn’t have to struggle. The key is automation, transparency, and proactive compliance.
Here’s what you need:
- A payroll system that keeps up: Automate tax deductions, RTI reporting, and compliance checks.
- Vetted umbrella providers: Partner only with fully compliant suppliers.
- Audit-ready records: Ensure full payslip transparency and error-free invoices.
- Real-time compliance tracking: Stay ahead of recruitment legislation changes before they impact your agency.
Get ahead of recruitment legislation before it’s too late
Struggling to keep up with PAYE compliance? You’re not alone. The agencies that grow the fastest aren’t just great at placing talent, they’ve mastered their payroll and billing function.
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- The 5 biggest payroll and billing mistakes that stall agency growth (and how to fix them).
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- The secret to faster payments and better cash flow.
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Don’t let payroll and billing choke points hold your agency back.
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Access Pay and Bill automates tax deductions, real-time reporting, and audits, so you don’t have to. Stay compliant, avoid fines, and focus on growing your business. See it in action
