In April 2026, HMRC is cracking down on rogue providers in the outsourced payroll space in a legal shift that will impact the relationship between construction firms, their recruitment agencies and payroll suppliers. Heavily reliant on an assignment-based workforce, this move could destabilise the multibillion-pound industry if all parties are not prepared ahead of the changes.

Recruitment agencies across the country typically outsource the payroll function for contract workers to third-party suppliers known as umbrella companies. In construction, this practice is commonplace. Firms that hire without using an agency also often engage umbrella companies. These payroll suppliers act as employment intermediaries that employ and pay contract workers on behalf of agencies and end clients. 

Many umbrella companies operate compliantly, providing administrative benefits for agencies and businesses. However, a lack of regulation has led to a proliferation of fraudulent schemes and activities by a minority of umbrella companies, such as incorrect tax deductions, pay skimming and withholding of holiday pay. Workers and businesses are put at risk of unexpected tax bills or punitive action if they are caught up in illegal supply chains. Furthermore, non-compliant umbrella companies undercut compliant firms, threatening their viability.

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