The 2026 umbrella legislation changes are fast approaching, making compliance a top priority for recruitment agencies. With the introduction of rules potentially shifting liability and responsibility for unpaid PAYE tax to agencies, having a Preferred Supplier List (PSL) of trusted partners has gone from being best practice to an absolute necessity.
But how can you ensure your PSL is genuinely risk-free? Building a compliant and robust PSL requires more than just a quick review of potential partners. It demands a structured approach, clear accountability, and ongoing vigilance.
In this blog, we’ll guide you through the essential steps to create a PSL that safeguards your business, protects your clients, and ensures your contractors are treated fairly – all while keeping you fully compliant.
Step 1: Identify trusted umbrella companies
The foundation of a risk-free PSL lies in working with umbrella companies that are both compliant and reputable. Start by researching providers with a proven track record and look for those that:
- Hold recognised accreditations, such as Freelancer & Contractor Services Association (FCSA) membership, which requires independent audits of financial and ethical compliance and/or SafeRec, which is AI technology that forensically audits payslips in real time.
- Offer operational transparency, including clear pay models, documented processes, and open communication.
- Demonstrate full compliance with PAYE deductions, ensuring tax and National Insurance Contributions (NICs) are handled correctly.
Conducting due diligence at this stage is crucial. Shortlisting trusted providers upfront will save you from compliance risks down the line.
Step 2: Conduct a thorough compliance audit
Once you’ve identified potential umbrella companies, it’s time to go deeper with a compliance audit. This should include:
- PAYE tax processes: Ensuring all tax liabilities are calculated and very importantly, are remitted to HMRC correctly.
- Payslips and RTIs: If you’ve engaged with the providers previously, you should sample contractors payslips against the matching RTI returns.
- NICs and statutory obligations: Verifying that holiday pay, pension contributions, and other entitlements are correctly administered.
- History of compliance: Checking for any involvement in tax avoidance schemes or HMRC disputes.
- Financial review: assess the businesses annual accounts and balance sheet to ensure that you’re partnering with businesses that are ran with financial stability at the forefront.
Under the 2026 umbrella legislation, recruitment agencies will likely bear the financial risk if an umbrella company defaults or engages in non-compliant practices. This makes a thorough audit non-negotiable.
Step 3: Establish clear terms of partnership
Transparency and accountability should form the backbone of your relationship with umbrella companies. Establish clear terms of partnership that include:
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- Written agreements defining each party’s compliance responsibilities, payment processes, onboarding and customer service SLAs and obligations.
- Potential indemnity clauses protecting your agency by shifting liability back to the umbrella company in cases of negligence or non-compliance.
- Defined communication protocols to ensure legislative changes are shared and implemented quickly.
Setting clear expectations upfront protects your business and strengthens partnerships.
Step 4: Schedule regular PSL reviews
Creating a PSL is not a one-and-done task. Compliance is an evolving landscape, and regular PSL reviews are essential to stay ahead of risks. Best practices include:
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- Annual compliance audits: Reassess each umbrella company to ensure they continue to meet regulatory and industry standards.
- Monitoring industry changes: Stay informed about updates to tax legislation, HMRC guidelines, and best practices – and adjust your PSL accordingly.
- Tracking performance metrics: Evaluate partners based on contractor feedback, payment accuracy, and responsiveness to compliance updates.
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The bigger picture
By aligning yourself with fully compliant umbrella companies, you safeguard your business against financial penalties, protect your reputation, and reassure your clients and contractors that they’re in safe hands.
The upcoming 2026 changes present both challenges and opportunities. By acting now to establish and maintain a robust PSL, you not only mitigate risk but also futureproof your business for long-term success.
Need help navigating the complexities of compliance? Get in touch today for expert advice on building a PSL that keeps your agency compliant and competitive.
