HMRC’s draft legislation for Finance Bill 2025-26, published this week, targets two critical areas for UK employers: non-compliance in the umbrella company / agency market and the tax treatment of Employee Car Ownership Schemes (ECOS).
These proposed changes reflect HMRC’s increasing focus on enforcing fairness and transparency in the employment taxes system. Although a consultation on the draft legislation is running until 15 September 2025, we expect the draft legislation to be passed.
If you’re a business, employer or other organisation likely to be affected by these changes, you should get ready as soon as possible.
Read on for key details of these changes, recommended next steps and how our employment tax specialists can help you to prepare.
Umbrella companies: tackling non-compliance
In a long-anticipated compliance push, the proposed rules will allow HMRC to hold employment businesses (recruitment agencies) liable for unpaid taxes when engaging umbrella companies that flout PAYE and NIC obligations.
This move aims to dismantle avoidance structures and tackle widespread mini-umbrella fraud, shifting risk directly onto agencies and their end clients (under the joint and several liability provisions) who fail to conduct proper due diligence. It’s due to have effect from 6 April 2026.
Next steps
- If you’re an employment intermediaries and agencies, you should urgently review your labour supply chain governance, documented audit trails, and umbrella onboarding processes
- Failing to identify non-compliant umbrellas could expose employers to significant tax liabilities, penalties and reputational damage
Employee Car Ownership Schemes (ECOS): amending the benefit in kind rules
From 6 October 2026, as widely expected, ECOS will be brought within the scope of benefit in kind (BiK) legislation, ending their long-standing tax advantage. The proposed change closes an effective loophole that enabled employees to access company cars with reduced or no BiK charges via conditional ownership models.
When the measure takes effect from 6 October 2026, vehicles provided through ECOS arrangements will be deemed as liable for the income tax associated with the benefit.
Next steps
- If you’re an employer offering ECOS, you should review their existing fleet arrangements and begin transition planning now
- Cost modelling and early employee communication will be key, particularly where fleets have been structured around these schemes for retention or reward
How BKL can help
Our specialists in employment tax and business tax can guide you through the changing regulations and ensure that you’re fully compliant. This includes reviewing your processes to help you minimise your risk and your tax liability.
For a chat about how we can help you, get in touch with Stephen Baker or send us an enquiry.
