If your sites run on agency labour, the PAYE liability for anyone paid through an umbrella company has moved. Since 6 April 2026, the recruitment agency that supplies the worker is the deemed employer for tax and National Insurance purposes, not the umbrella company itself. Cut the agency out and engage an umbrella company directly, and the developer takes on that liability instead. Five months in, most of the developers we talk to still think this is someone else's problem. It generally isn't.
What the old rules got wrong
The umbrella company model itself is legitimate. A worker is employed by the umbrella company, which invoices the agency or end client for the work done and pays the worker a salary through PAYE, deducting income tax and National Insurance in the normal way. Used properly, it's a straightforward way to engage temporary labour without the client running its own payroll for casual staff.
The problem was enforcement. A minority of umbrella companies deducted PAYE and National Insurance from workers' payslips, showed the deduction as taken, and then simply didn't pay the money over to HMRC. Some ran elaborate structures involving dozens of shell companies, cycling workers between them every few months so that each individual entity's liability stayed small and each one could be dissolved before HMRC caught up with it. The worker had already had the deduction taken from their pay. HMRC's practical route to recovering it was to chase a company that was, by design, judgment-proof or gone.
Construction and property development sat squarely in the middle of this. Sites routinely flex their labour force up and down through agencies, and a fair amount of that labour, particularly for plant operators, site managers and other roles that don't fit neatly under the Construction Industry Scheme, has historically been paid through umbrella arrangements.
Where the liability sits now
From 6 April 2026, the recruitment agency that supplies the worker to the end client is treated as the deemed employer for PAYE purposes on the pay the umbrella company processes, whether or not the agency itself ever handles the money. If the agency fails to ensure the correct tax and National Insurance is accounted for, HMRC can assess and collect from the agency directly.
Where there is no agency in the chain at all, because the developer has contracted with the umbrella company directly to supply labour, the deemed employer role and the liability sit with the developer instead. That's the scenario that catches people out. A site or project manager who's used the same umbrella provider for years, with no agency involved, may not realise the business itself is now the party HMRC will look to if that provider's PAYE position turns out to be wrong.
This sits alongside, rather than replaces, the off-payroll working rules that determine whether a worker engaged through their own personal service company should be taxed as employed. We cover how that separate test applies to consultants and project managers engaged through PSCs in our guide to IR35 for property developers. Umbrella company workers are already taxed as employees at source through PAYE, so the question here isn't employment status, it's whether the tax actually deducted gets paid over, and who HMRC can hold to account if it doesn't.
How this differs from CIS
It's worth being clear about what this change does and doesn't touch. A genuine CIS subcontractor, whether a sole trader or operating through their own limited company, is not paid through an umbrella company and isn't affected by this reform. CIS deductions are a payment on account of the subcontractor's own tax liability, made by the contractor under a completely separate scheme, covered in our guides to CIS gross payment status and deemed contractor status for developers.
Umbrella arrangements are typically used for roles that sit outside CIS altogether, plant and machinery operators, site management, and other functions supplied on an agency basis rather than as construction operations subcontracted for a price. Where a developer uses both models, which is common on larger sites, the two need to be assessed separately. Misreading an umbrella-paid worker as a CIS matter, or vice versa, is its own compliance problem before you even get to the PAYE liability question.
Due diligence is no longer optional
Before this change, a developer's exposure to a non-compliant umbrella company was mostly reputational, plus the disruption of losing a workforce mid-project if a provider collapsed. Now, depending on where the developer sits in the supply chain, there can be a direct tax bill attached. That changes what reasonable due diligence looks like before appointing an agency or umbrella provider, and before continuing to use one you've worked with for years without checking.
At minimum, that means understanding exactly who sits between the worker and the business, whether an agency is genuinely in the chain or whether the umbrella company is being engaged directly, checking how long a provider has been trading and whether it holds relevant accreditation, and building a right to audit or at least request evidence of PAYE compliance into the commercial agreement. None of this needs to be elaborate, but it needs to exist and be revisited periodically, not done once and filed away.
Common mistakes
- Assuming the umbrella company always carries the risk, regardless of whether an agency sits in the supply chain
- Not checking whether a long-standing labour provider is genuinely an agency or is, in substance, the umbrella company itself
- Treating this as an HR or site management issue rather than a tax exposure that needs input from whoever manages the group's tax position
- Confusing umbrella company PAYE liability with IR35 status determinations, which are a separate test covering a different type of engagement
- Continuing to use a labour provider chosen years ago on price alone, without revisiting its compliance position now that liability can attach to the developer
What this means for property developers
If your sites use agency or umbrella labour at any scale, this is worth a proper review rather than a assumption that your agencies have it covered. Map out who actually sits in each labour supply chain, confirm in writing where the deemed employer responsibility falls on each arrangement, and satisfy yourself that the providers you're relying on are the kind of business that would still be standing, and still be compliant, if HMRC came asking. It's the same discipline we'd expect around any subcontractor or supplier relationship where the business is exposed if the other side gets it wrong, and it's exactly the kind of structural review we run as part of our Property Developer Advisory work.
Common questions
What changed with umbrella company PAYE from April 2026?
From 6 April 2026, the recruitment agency that supplies a worker paid through an umbrella company is treated as the deemed employer and becomes responsible for accounting to HMRC for PAYE income tax and National Insurance on that worker's pay. Where a business engages an umbrella company directly, with no agency in the supply chain, that business itself takes on the deemed employer role and the liability.
Why did HMRC change the rules on umbrella companies?
Non-compliant umbrella companies were deducting PAYE and National Insurance from workers' pay, showing it on payslips, and then simply not paying it over to HMRC before disappearing and reappearing under a new name. Because the liability sat with the umbrella company, HMRC had limited practical ability to collect the shortfall, and the worker had already had the deduction taken from their pay. Moving the deemed employer role to the agency or end client gives HMRC a solvent, identifiable party to collect from.
Does this apply to CIS subcontractors on a development site?
No. A genuine CIS subcontractor operating as a sole trader or through their own limited company is not paid through an umbrella company and is not caught by this change. The rules apply specifically to workers supplied via an agency and paid through an umbrella company's payroll, which is a different labour supply model to CIS subcontracting.
What should a property developer do if it doesn't use a recruitment agency?
A developer that engages an umbrella company directly, without an agency sitting between them, becomes the deemed employer itself and carries the PAYE and National Insurance liability if the umbrella company fails to account for it correctly. In that situation, the developer should treat the umbrella company's compliance as its own risk and carry out the same level of due diligence it would apply before relying on any other payroll provider.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.