UK recruiters fearful of impact of April 2026 umbrella legislation

Whilst HMRC’s looming introduction of new umbrella legislation is set to address its historic handling of fraudulent payroll providers, UK recruitment companies are scared of the scope and direct impact on their business, says employment lawyer Kareena Prescott.

Speaking at the recent, inaugural ‘Navigating the New Era of Recruitment Compliance’ event, hosted by Magic Connect for the recruitment industry, Kareena explained why she feels the UK’s recruitment sector is set for a momentous and historic shift when the new legislation takes effect next April.

Kareena, the founder of C2E Law, and a specialist in guiding recruitment companies through complex legal landscapes, said:

“The changes serve to act as a reminder of the policy intent behind tighter labour supply chain compliance. For recruiters of all sizes and in every sector, this is ‘the juicy bit’ for me.”

“In my view, historic approaches to tackling MUCs have not always discouraged bad actors, which is one of the commonly cited rationales for legislative change — to reduce fraudulent activity.

“The consequence of the new legislation, however, is that recruitment agencies are genuinely scared of what the future holds and really concerned about the real impact of the new umbrella legislation, stricter HMRC audits, and joint and several liability set to be introduced in April next year,” she said. “Together, these changes are set to totally reshape payroll, compliance, and supply chain accountability and will see recruitment agencies and end hirers face unprecedented levels of scrutiny and risk.”

Historically, recruiters and end hirers have relied on third party accreditation of a payroll provider as a guarantee that an umbrella company is fully compliant. But, said Kareena, this will no longer be enough:

“FCSA, Professional Passport and SafeRec are all good for peace of mind, but don’t automatically mean that the umbrella is doing things right, properly, and compliantly."

Solution

As well as establishing an umbrella does indeed have third party accreditation, Kareena stressed that the key solution for recruiters to ensure they are working with a compliant and non-fraudulent umbrella payroll provider is robust due diligence:

“Recruiters that prepare for April’s changes with a deep-dive review of all their processes and procedures, and especially ensure that day-to-day they have consistent, frequent and effective due diligence, will be best placed to protect themselves,” she said.

“Post April, my advice is to do this due diligence review every month. Committing to this will mean recruiters keep on top of all relevant legislation and compliance, and importantly guarantee that the whole supply chain is compliant. This is vital to minimise recruiters’ liability.”

Tough time for recruiters

“I feel sorry for recruitment agencies,” Kareena said.

“UK recruiters have so much to deal with and prepare for already, and now are faced with huge, far-reaching changes, which represent a landmark point for the sector.

“On top of this, many businesses are also dealing with ongoing HMRC enquiries and disputes, and are having to make difficult commercial decisions in a bid for recruitment organisations to remain sustainable.

“Furthermore, we are seeing increased scrutiny around joint employer arrangements, alongside pressure on rates and compliance requirements across the supply chain.”

“If a PAYE shortfall is alleged in an umbrella model, questions about responsibility and recovery can escalate quickly across the supply chain, with multiple parties potentially facing exposure.”

“I’m concerned,” Kareena said.

Fair Work Agency

The Employment Rights Bill establishes a new Fair Work Agency, which will combine existing enforcement bodies and provide guidance to businesses on compliance with new regulations. According to the Bill, this agency will ensure that businesses adhere to statutory employment rights, including proper payment of holiday pay and minimum wage.

“Many are asking whether the Fair Work Agency will actually have the capacity and teeth to deliver the major change policymakers have promised.”

“In my view, probably not straight away,” Kareena said.

Additional Information

Read more about the Employment Rights Bill in our blog: ERB and the ban on exploitative zero hours contracts | Magic Connect

The ‘‘Navigating the New Era of Recruitment Compliance’ event tackled the most urgent challenges facing recruitment agencies from April 2026 when the new umbrella legislation, stricter HMRC audits, and joint and several liability are introduced.

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