ESM2440 - Umbrella companies legislation: Chapter 11 ITEPA 2003- purported umbrella companies
Source: gov.uk (2025-09-18)


This guidance is effective from 6 April 2026 and relates to draft legislation expected to be included in the next Finance Bill. The legislation and guidance is subject to revision before or during the process of Parliament considering the Bill.

Section 61Z1 Chapter 11, Part 2 ITEPA 2003

Section 61Z1 Chapter 11, Part 2 ITEPA 2003 specifies the conditions under which joint and several liability applies to circumstances where a worker is supplied by a business that is a purported umbrella company. This happens when it is reasonable to assume that one or more parties in the contractual chain believed the purported umbrella company employed the worker or were treating payments as earnings, when in fact it did not.

This section applies:
- If the purported umbrella company participates in arrangements that would result in the umbrella company arrangements conditions see ESM2410- when the legislation applies and commencement (https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm2410) being met if they employed (not including deemed employment) the worker
- It is reasonable to suppose that one or more participants in the arrangements, other than the purported umbrella company or the individual, would assume that the purported umbrella company is the employer (not including deemed employment) of that individual
- The individual is not employed (not including deemed employment) by the purported umbrella company and
- If the individual were employed (not including deemed employment) by the purported umbrella company, joint and several liability would apply.
This section also applies when the worker has a material interest in the purported umbrella company and it is reasonable to assume that one or more parties expected the company to treat a substantial portion of the payments as earnings, but it did not.

This section applies:
- Where an individual has a material interest in the purported umbrella company
- Which participates in arrangements that would, if the company were the umbrella company, result in the umbrella company arrangements conditions being met see ESM2410- when the legislation applies and commencement (https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm2410) in relation to the services the individual provides to the client
- It is reasonable to suppose that one or more participants in the arrangements, other than the purported umbrella company or the individual, would assume that a substantial proportion of amounts paid to the individual would be treated as earnings
- A substantial proportion of amounts paid to the individual has not been treated as earnings, and
- Joint and several liability would apply if the material interest condition did not exist.
If this section applies via either of the above routes or similar:
- The individual is to be treated for income tax purposes as holding an employment with the purported umbrella company, the duties of which consist of the services the individual provides to the client
- All relevant remuneration received by the individual (from any person) in consequence of providing the services is to be treated for income tax purposes as earnings from that employment and
- Accordingly joint and several liability will apply.
For further guidance on material interest

See ESM2415 - defining umbrella companies (https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm2410)

More than one purported umbrella company

Where there is more than one person that is either a purported umbrella company or an employer of the individual in relation to the services the individual provides to the clients, each is jointly and severally liable for any amount payable, in accordance with the PAYE provisions, in relation to the relevant remuneration.

Relevant remuneration means

All remuneration receivable by the individual (from any person) in consequence of providing the services and any other amount that is just and reasonable to attribute to the provision of the services by the individual. This could include for example any amounts that would be included in Chapters 8 to 10 ITEPA 2003 calculations.

Interaction with other intermediaries

Deemed employment as a result of this section will take precedence over Chapter 7 to 10 ITEPA 2003 and the salaried members rules.

This means that workers who supply their services in a way that would previously have been deemed employees as a result of that legislation will instead be treated as employees of a purported umbrella company if there is one involved in the provision of the services.