Why a preferred supplier list is vital in today’s compliance landscape

As the 2026 umbrella legislation changes approach, recruitment agencies are entering a new era of compliance that demands greater accountability. Announced in the 2024 Autumn Budget, these upcoming regulations will shift the financial responsibility for unpaid PAYE tax from umbrella companies to recruitment agencies – and, in some cases, further down the supply chain.

This overhaul places compliance at the forefront of operational priorities for recruitment agencies. A lack of in-depth due diligence could result in financial penalties and reputational damage. To navigate these challenges effectively, a robust Preferred Supplier List (PSL) of trusted umbrella companies is no longer a “nice-to-have” but an essential tool in mitigating risk.

Here, we’ll break down the new compliance landscape, explore the risks of non-compliance, and explain why a carefully curated PSL can be your business’s first line of defence.

The changing compliance landscape

The introduction of the umbrella legislation in April 2026 represents a seismic shift in how tax compliance is managed within the recruitment supply chain. Likely impact:

• Recruitment agencies will have more liability if an umbrella company defaults on its PAYE tax obligations or engages in tax avoidance schemes.
• Agencies will be expected to conduct rigorous due diligence to ensure the compliance of any umbrella companies they engage with.

These changes aim to stamp out disguised remuneration schemes and unfair employment practices that have historically cost HMRC billions in lost revenue.

For agencies, it’s no longer enough to simply rely on umbrella companies’ claims of compliance. Robust systems and processes are required to verify and document the compliance status of every partner – and this is where a well-maintained PSL becomes indispensable.

Key features of a robust preferred supplier list

To maximise its effectiveness, your PSL should:

• Prioritise compliance: Include only umbrella companies that have passed thorough due diligence, including audits of their PAYE processes and financial stability, plus potential accreditations and third-party audits. One of the most recognised accreditations in the industry is from the Freelancer & Contractor Services Association (FCSA), which sets rigorous compliance standards for umbrella companies. FCSA accreditation requires businesses to undergo independent assessments to ensure they meet strict ethical and financial criteria, giving agencies greater confidence in their PSL choices.
• Be regularly reviewed: Compliance is not static. Conduct periodic reviews to ensure all listed suppliers remain compliant with the latest regulations.
• Be transparent: Clearly communicate the criteria for inclusion on your PSL to suppliers but also to your contractors and clients. Transparency builds trust and ensures consistency.
• Adapt to industry changes: Stay informed about legal and regulatory updates and adjust your PSL criteria as needed.

By focusing on these elements, your PSL becomes more than a list – it becomes a proactive strategy for navigating the complexities of the compliance landscape.

Why acting now is crucial

The April 2026 deadline may seem distant, but the reality is that preparation must start as soon as possible. Reviewing or establishing a PSL is not an overnight task. It involves identifying potential partners, conducting thorough due diligence, and implementing clear processes to monitor ongoing compliance.
Failing to act early could leave your agency scrambling to address compliance gaps at the last minute – something that could cost both time and money while exposing your business to avoidable risks.

By partnering exclusively with umbrella companies that meet the highest standards of compliance, you can safeguard your agency, strengthen your client relationships, and protect the contractors who rely on you.

Get in touch now to find out more about our FCSA-accredited umbrella company, and why we have one of the best Trustpilot ratings in the industry.