The recruitment sector is standing on the brink of one of its most significant regulatory overhauls in recent history.

From April 2026, recruitment agencies in the UK will become directly accountable for ensuring Pay As You Earn (PAYE) tax obligations are met for all umbrella workers they engage. This marks the most substantial compliance shift since the introduction of the Off-Payroll Working rules and the implications for agencies, especially those unprepared, are both serious and far-reaching.

Although the detailed legislation is not expected to be published until July 2025, this does not mean businesses should adopt a ‘wait and see’ approach. On the contrary, those in the recruitment sector should be taking immediate, proactive steps to understand their risks, audit existing practices, and embed robust compliance measures across their operations.

This isn’t about speculation, it’s about safeguarding your business, your reputation, and your financial security in what is shaping up to be a more tightly regulated market.

High-Risk Sectors: A Need for Urgency

Certain industries are already under the spotlight, with HMRC identifying sectors such as healthcare, social care, and education as particularly vulnerable to non-compliance. If your agency operates in these spaces, the time to act is now.

Historically, these industries have been fertile ground for non-compliant umbrella arrangements, leaving agencies exposed to considerable tax risks and reputational harm. With HMRC intensifying its scrutiny, complacency is no longer an option.

The Hidden Threat of Consultant-Umbrella Relationships

One of the most pressing risks facing agencies stems from questionable relationships between consultants and non-compliant umbrella companies. It is not uncommon for consultants to receive financial incentives to direct workers toward specific providers. Shockingly, in some cases, these undeclared payments have rivalled or even exceeded the consultants’ core salaries.

Not only does this create a toxic environment that encourages non-compliance, but it also exposes your business to severe legal consequences under the Criminal Finances Act.

Recruitment agencies can be held criminally liable if they are found to have failed in their duty to prevent tax evasion by employees or associated persons. To mitigate this, it is essential to demonstrate that your business has robust procedures in place to detect and prevent such practices.

Data Protection: A Compliance Minefield

Beyond tax concerns, breaches of data protection laws are another critical threat. We are seeing alarming reports of consultants passing personal data, such as workers’ contact details and employment history, to umbrella companies without consent. Such actions constitute a violation of the Data Protection Act and can leave your business exposed to significant fines and legal proceedings.

This is a stark reminder that compliance extends beyond payroll and tax, your agency’s handling of personal data must also withstand regulatory scrutiny.

Internal Pressures: Preparing for Cultural Change

With the upcoming changes, many consultants accustomed to earning substantial commission payments from non-compliant umbrella referrals will face an abrupt end to these income streams. In some instances, these additional earnings have reached the equivalent of a £150,000 annual salary.

The sudden removal of these incentives is likely to cause friction within your organisation and could create fertile ground for promoters of non-compliant schemes to exploit disillusioned staff.

Combating this risk requires more than contractual updates; it demands a fundamental shift in culture, reinforced by clear policies, education, and consistent leadership.

Commercial Pressures vs Long-Term Liabilities

Many agencies, particularly in competitive sectors, feel under pressure to engage with questionable providers to avoid losing candidates to rivals who turn a blind eye to compliance.

However, chasing short-term gains while ignoring long-term risks is a dangerous strategy.

HMRC has made it clear that recruitment agencies can be pursued for unpaid taxes if they are found to have facilitated or tolerated non-compliant arrangements. The potential liabilities can be devastating.

Red Flags You Cannot Ignore

The signs of non-compliance are already visible. A sudden, unexplained migration of workers to a specific umbrella company is often a red flag for the presence of an aggressive, potentially non-compliant scheme.

Likewise, organised networks frequently move large groups of workers between schemes when they sense heightened scrutiny.

Another common warning sign is an unexpected drop in contractors’ take-home pay. We saw similar conditions during the rollout of the Off-Payroll Working rules, where non-compliant schemes proliferated by promising inflated returns under false pretences.

History may be repeating itself, and agencies must remain vigilant to avoid being caught off guard.

Taking Action: The Road to Compliance

With less than two years until the April 2026 deadline, time is of the essence. Recruitment businesses must undertake a comprehensive review of their processes, supplier relationships, and internal culture. This includes:

  • Auditing all relationships with umbrella companies to ensure compliance standards are met.
  • Implementing clear policies to detect and prevent tax evasion within your workforce.
  • Educating consultants on the upcoming changes and the risks associated with non-compliance.
  • Establishing data protection protocols to prevent unlawful sharing of personal information.
  • Monitoring for red flags such as worker migrations or abrupt changes in contractor earnings.

How We Can Help

At Williamson & Croft, we have strong expertise in supporting recruitment agencies to navigate complex tax, payroll, and compliance challenges.

Our experienced team can help you audit your current processes, identify vulnerabilities, and implement the right systems to protect your business ahead of the 2026 changes.

Don’t wait for the legislation to catch you off guard. Take proactive steps now to secure your business, your workforce, and your reputation.

Contact us today for a confidential consultation. Together, we’ll ensure your agency is ready for what lies ahead.