Under new HMRC rules, if an umbrella company fails to pay its PAYE income tax, National Insurance, or Apprenticeship Levy obligations, the recruitment agency that used them will be held jointly and severally liable, even if the agency followed every rule.

This concept of joint and several liability (JSL) means HMRC can recover unpaid tax from any party in the labour supply chain, including the agency or, if there’s no agency involved, the client school, regardless of who was actually at fault.

This is a significant shift. Agencies could face unexpected tax bills simply because the umbrella company they partnered with became insolvent or failed to meet its obligations.

According to HMRC, unpaid tax from umbrella companies already totals £2.85 billion, and the figure is set to rise without intervention.

What are umbrella companies? And why do agencies use them?

Umbrella companies act as intermediaries between recruitment agencies and temporary staff, handling payroll, tax deductions, and employment administration. Many agencies use them because they:

• Reduce administration costs

• Lower direct tax liability

• Increase profit margins

However, the downside is clear: if the umbrella company fails to meet compliance requirements, the risk can cascade down to schools, candidates, and now, with this legislation, the agencies themselves.

Why Education World is not affected

At Education World, this legislation won’t impact us, because we’ve never used umbrella companies.

Our payroll is:

✅ Fully in-house
✅ Compliant with HMRC regulations
✅ Transparent from payslip to payment

This means:

• Our candidates keep more of what they earn

• We maintain full control over financial compliance

• Our schools aren’t exposed to third-party payroll risks

We chose this model from day one, not because we had to, but because we believe it’s the right way to operate.

What this could mean for schools

For schools working with agencies that still use umbrella companies, the new legislation could have consequences, including:

• Higher charge rates to offset financial risk

• Disrupted staffing if an umbrella provider collapses

• Damaged trust when payroll issues arise

Given these risks, now is the perfect time for schools to review their agency partners and ask if they are still using umbrella companies.

What educators should do now

If you’re a teacher or supply staff member, take a moment to:

1. Check your payslip, who is actually paying you?

2. Ask your agency directly, do they use an umbrella company?

3. Consider the long-term, does your agency prioritise transparency and compliance over short-term profit?

The Bottom Line

The new HMRC legislation is designed to close a costly tax gap, but it could create financial headaches for agencies tied to umbrella companies, and for the schools and educators who rely on them.

With scrutiny around umbrella companies at an all-time high, choosing an agency with in-house, transparent PAYE payroll is the safest option for both candidates and clients.

At Education World, we’re proud to have taken that route from the very beginning, ensuring that schools, teachers, and support staff stay protected, compliant, and paid fairly.