Why have I been asked to change umbrella company by my client?
New rules are prompting hirers to rethink their approach to working with umbrella companies.
FAQ
New rules are prompting hirers to rethink their approach to working with umbrella companies.
New rules arrived in April 2026, creating joint risk for hirers and umbrellas - so many clients are switching to more reputable suppliers.
If you’re new to freelancing and you’re asked to work with an umbrella, you might wonder what the rainy weather has to do with freelancing.
But if you’re an established freelancer, you might already have worked via an “umbrella” - and new rules arrived coming in April 2026, which might affect you and your relationship with them.
In the past few years, some unscrupulous businesses have not been behaving fairly, taking tax from freelancers but not paying it on to HMRC, or going out of business with tax bills due.
HMRC estimated that over a third of umbrella workers were engaged by non-compliant or tax evading companies, at an annual tax cost of at least £500 million!
The government is cracking down on these dodgy behaviours, and spreading the responsibility across businesses involved in “the chain”: from umbrella to recruiter and employment agencies, so someone somewhere has to pay.
The new change introduces “joint and several liability”, meaning that if an umbrella company fails to pay the correct PAYE tax and National Insurance, HMRC can also pursue the recruitment agency or the Managed Service Provider (a company that manages the supply of contractors and freelancers on behalf of a large client organisation) depending on who is involved in the chain, for the unpaid tax.
It’s causing a bit of panic in some circles, and as a result many agencies might be switching to different umbrella companies, and restricting firms you can use to their own “Preferred Supplier Lists”.
This means you might also be required to switch to a new umbrella.
In practical terms, that means you are leaving an umbrella as your existing employer, you’ll get a P45, and will be required to start a new contract with new terms with a new umbrella/employer.
Hopefully, there will be minimal disruption, and it’s just a bit of paperwork BUT if you’re not clear on the change, there’s a risk you might lose out as the freelancer.
This stuff hurts my head, so I asked Lucy Smith of Clarity Umbrella to explain what it might mean for you, and what you need to keep an eye out for. She’s kindly answered some key questions for us!
In most cases, workers are being asked to move from an existing umbrella to a new one.
If they oppose the move, they may be told that the assignment is no longer available - shocking right?
The legislation is creating a situation whereby a worker no longer has a choice about whom they wish to be employed by!
1/ Pre-empt that you may be asked to move umbrella and do your research.
Pick up the phone! In April 2026 some of the larger companies are going to be inundated with workers as many are being asked to move, so you need to make sure that you are able to speak with someone who can help if you have any questions about your employment.
2/ Be prepared to see tax code changes. HMRC may not have time to amend your employment notes on your tax account from one umbrella to the next before you get paid next.
Just because a P45 may have been issued, it does not automatically mean that your personal tax account online has been updated.
You could end up with dual employment and worse still a tax bill at the end of the year, so understand your personal tax code, and if you don’t make sure to ask your umbrella! They won’t be able to amend it for you, unfortunately that will be a call to HMRC, but they will be able to help guide you on what to say or ask.
3/ Once you find your new umbrella, make sure you request an illustration of your take home pay, so you don’t end up with any nasty surprises.
Your new Umbrella company take home pay should be very similar to what you’ve been used to if you have been working via a compliant brolly, but we know in reality there may be some companies that have not been working compliantly, so make sure you know what you are getting.
4/ Check to see how they operate their pension.You may have had a pension with your existing provider, and the new brolly may use a different provider, so you could end up with multiple pension pots.
Take a moment to see if it is worth consolidating the schemes to make it easier to keep track. Also check to see how they operate: is it standard auto enrolment, maybe with a deferred period, do they offer salary sacrifice, can you do this to your chosen provider (SIPP) rather than their provider, are there any costs to do the SIPP option?
5/ And then there is holiday pay - and this is important to make sure you’re not losing money!If you opted to accrue holiday pay with your previous employer, then make sure you reclaim this before you leave.
Make that request and ensure it is paid out to you with your final payment. Some umbrella companies will offer to accrue or advanced payment, so again make sure you know what you are getting when you transfer.
Accruing holiday will leave you with money to draw down on when you take annual leave, whereas having it advanced means no funds available when you don’t work.
This seems to be very much down to preference, but again always make sure you know what you are getting before you settle into the contract.
Lucy Smith is MD of Clarity Umbrella Ltd, an award-winning umbrella company with a reputation for open, honest and transparent working. Thanks to Lucy for sharing her wisdom with us!
Rules are changing around umbrellas - which might mean some of your clients or agencies might ask you to move to a new umbrella scheme.
If you’re being asked to move umbrellas:
Working with umbrellas can get complicated, as you’re technically employed, and if you are then combining self-employment with employment it can make things more complex for your accounts and self-assessment.
If you are working via an umbrella as a freelancer, with additional untaxed self employment income, and you’re not getting advice on how to complete your self-assessment accordingly, it’s worth getting some professional input from an accountant.
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