Why these changes matter, what the risks are, and how to protect your business moving forward.
Doing things properly has always mattered to us.
We’ve always been big on doing things properly.
Not in a box-ticking way, not because we feel like we have to, but because we’ve seen what happens when things aren’t done right. In recruitment, what sits behind the scenes matter just as much as what you see on the surface. It’s not just about finding the right person for a role, it’s about how that person is engaged, paid, and supported once they’re in.
With Lauren, our director, being a board member of the Association of Labour Providers, compliance and responsible recruitment aren’t just talking points to us. They’re a part of how we operate day-to-day. We take it seriously because we know that when something goes wrong in the supply chain, it rarely stays contained. It has a knock-on effect, and more than not, it’s the client that ends up dealing with the consequences.
The changes are here, and they matter more than you think
Starting this month, the government is introducing significant umbrella company changes in the UK, and they’re not something that can be ignored or left to sit in the background.
In simple terms, responsibility for PAYE and National Insurance is moving. If tax isn’t paid correctly within the supply chain, HMRC will have the ability to recover the money further up, including from recruitment agencies and, importantly, from the businesses using them.
So even if you’re not directly involved in how workers are paid, and even if you’ve always trusted your suppliers to handle things properly, there is now a greater expectation for visibility and accountability.
Why the government is making these changes
These umbrella company changes haven’t come out of nowhere. They’re a part of a wider effort to clean up areas of the recruitment industry that have operated in grey zones for way too long.
One of the main drivers behind these changes is the misuse of umbrella company structures, particularly through what’s known as mini umbrella company schemes. These have been used as a way to reduce tax liabilities in ways that aren’t compliant, often without the end client being fully aware of what’s happening.
For a long time, these practices have created an uneven playing field. Businesses and agencies doing things properly have been competing against those cutting corners, and the lack of clarity has made it difficult for clients to know exactly where they stand.
The upcoming changes are designed to remove that ambiguity and bring more transparency and accountability across the board.
What is a mini umbrella company? And why is it a problem?
A mini umbrella company scheme is essentially a way of structuring employment to reduce tax payments.
Instead of employing workers through one compliant umbrella company, individuals are split across multiple small companies. This allows those operating the scheme to take advantage of things like employment allowance, National Insurance thresholds, and VAT rules in ways that reduce overall tax liability.
On paper, it can look legitimate. In practice, it’s a way of avoiding tax.
The issue for businesses, is that these arrangements often sit further down the supply chain, meaning they’re not always visible at a first glance. You might not even realise they’re being used, but under the umbrella company changes, that doesn’t remove the risk.
The risk to your business (even if you’re not directly involved)
This is the part that tends to catch people off guard. With the new rules coming in, if tax hasn’t been paid correctly anywhere within recruitment supply chain, HMRC has the power to recover that from parties further up, including the end client.
That could mean:
- unexpected tax liabilities landing with your businesses.
- penalties and interest from HMRC
- reputational damage if something comes to light
And in many cases, businesses won’t even realise there’s an issue until they’re already dealing with the consequences.
That’s why the umbrella company changes this year are so important to understand now, rather than later.
“We don’t use umbrella companies”
Many businesses don’t rely on just one recruitment agency. They might have a preferred supplier, but still bring in others when demand increases or when they need additional support.
That’s where things can become less clear.
Even if one agency is fully compliant, another might be operating differently behind the scenes. And unless you’ve got full visibility of your supply chain, it’s difficult to know exactly how workers are being engaged and paid.
That’s where the risk sits. Not necessarily in what you know, but in what you don’t.
What we’re doing to help our clients
At Oliver Rae, we don’t use umbrella companies. That’s a decision we’ve made deliberately, because we believe it gives our clients greater clarity and removes unnecessary risk.
But we also recognise that most businesses don’t work with just one supplier.
That’s why we’ve created a simple audit spreadsheet that our clients can use, and adapt, to sense-check their recruitment supply chain. It’s not about pointing fingers or making things complicated. It’s about giving you a clearer picture of how things are set up and where potential risks might sit.
Sometimes just asking the right questions is enough to highlight areas that need attention.
What we’d recommend businesses do now
With the umbrella company changes this month, now is the right time to take a step back and review how your recruitment supply chain is structured.
You don’t need to overhaul everything overnight, but a bit of visibility goes a long way.
We’d recommend:
- taking time to understand who is involved in your supply chain
- asking how workers are being paid and through what structure
- checking whether umbrella companies are being used, and if so, how
- making sure your agencies are working in a compliant and transparent way
It doesn’t need to be overly complicated. But it does need to be looked at before these changes come into effect.
This is all about awareness
The aim here isn’t to create concern for the sake of it. It’s simply to make sure businesses are aware of what’s changing and what it could mean for them.
The umbrella company changes are ultimately a positive step for the industry. They’re designed to remove loopholes, improve transparency, and create a more level playing field for everyone involved.
But like any change, they require a bit of adjustment and a better understanding of how things work behind the scenes.
In summary
Recruitment has always been about more than filling roles.
It’s about how those roles are filled, how workers are engaged, and how everything is managed behind the scenes.
With the umbrella company changes coming into effect, those details matter more than ever.
Taking the time now to understand your position, ask the right questions, and review your supply chain could save a lot of time, cost, and stress further down the line.
If you want to check your setup
If you’re unsure where you stand, or you just want a second opinion on how things are currently set up, we’re always happy to have a conversation.
No pressure, we’re just making sure things are done properly.
Drop us an email here to request our audit checklist here