It’s easy to overstate the coming problems with Chapter 11, and there will undoubtedly be those who argue that there is nothing to worry about. But in drafting the legislation as it is, the government could be creating a tsunami of unnecessary consequences. Unforeseen or deliberate? Either way, as in my last article (link), there will be fallout affecting our industry.
Chapter 11 defines an umbrella company as a business that employs its workers and supplies them to provide services to others (my summary). In previous articles and indeed in our response to the technical consultation on Chapter 11 we warned that this would include recruitment businesses who by definition have no dealings with umbrella companies because they are the employer of the workers. And those businesses certainly do not fall within any normal person’s definition or understanding of what an umbrella company is. The definition is simply wrong.
As hirers react to having tax liability imposed on them, agencies will react also. There is no risk if you stop dealing with umbrella companies so an obvious conclusion will be simply to stop working with them. Yet where a workers work continues, the termination of employment by an umbrella company would probably entitle the worker to become employed by the agency in accordance with TUPE rules. Not only would the agency inherit the employment, but the terms of the contract would have to be the same.
This may not be the end of the world, but here’s the real rub. In so inheriting the employment, the hirer becomes jointly and severally liable for the agency’s unpaid employment Taxes. Was this intended? One way or another it’s an appalling outcome from a piece of legislation that is intended to address umbrella non-compliance.
For further information and discussion on Chapter 11, book your place at a Lawspeed seminar, sponsored by ARC, on 14th January 2026.
