Recruiters urge HMRC to streamline digital tax systems by 2026

Most recruitment agencies surveyed have called for HMRC to enhance its digital systems and streamline tax processes ahead of forthcoming changes to liability laws in the umbrella company sector.

Research findings

According to recent research conducted by Finity, nearly 80% of recruitment agencies believe that HMRC should do more to integrate its systems and simplify the compliance process before the new Joint and Several Liability rules come into force in April 2026. The study, which surveyed 202 employees working in finance departments within temporary recruitment agencies, highlights significant concerns in the recruitment industry regarding the UK's upcoming legislative changes aimed at tackling non-compliance within the umbrella company market.

The legislation, formally known as the 'Tackling Non-Compliance in the Umbrella Company Market' law, is set to place greater accountability on umbrella companies and recruitment agencies, potentially exposing them to larger financial penalties for tax errors in their supply chain. The findings indicate that 79% of respondents want HMRC to further integrate digital systems and simplify compliance processes, while 75% expect to use technology to help manage compliance and conduct real-time audits.

Industry perspectives

Varun Monteiro, Chief Executive Officer at Finity, highlighted the importance of accessible and instantaneous tax data for compliance in the sector:

"The latest update from HMRC marks a welcome, but significant change for umbrella companies and agencies, with accountability pushed further up the supply chain and significant financial repercussions for errors. However, our data shows a clear call from recruitment businesses for urgent action from HMRC and the broader industry when it comes to systems, processes and enabling technologies. Our research, combined with our detailed whitepaper, presents a bold call to action for HMRC to provide the digital infrastructure required to tackle compliance at source."

"While HMRC's accompanying Transformation Roadmap is a positive step forward, it is clear better integration and the ability to cross-check payslips with HMRC data through simple APIs, directly within payroll systems, is vital. Only by making essential tax information more accessible and instant, can the recruitment sector be truly empowered to verify their tax liabilities efficiently and with confidence."

In support of calls for enhanced digital transparency, Dale Simkiss, Compliance Expert and Non-Executive Director at Finity, remarked: "Currently, businesses in the recruitment sector face significant challenges in verifying whether tax liabilities have been accurately reported and settled in their supply chain. As the industry prepares for a new legislative landscape, now is the time to modernise the way we manage tax compliance, which will help ease the burden on the sector, mitigate financial risks and create a more transparent and trustworthy tax system."

Technology and transparency

Monteiro noted that the new requirements strengthen the sector's need for technology-driven solutions. He added: "This will be made even more challenging with HMRC's new regulations, which seek to enforce stronger measures for tax transparency and accountability. As our research has indicated, there is a strong desire for new technology, not least because of the lack of efficient, real-time access to tax data, which is likely to hamper efforts to comply, leaving businesses vulnerable to compliance failures, fraud or reputational damage."

Background to the legislation

The Joint and Several Liability initiative aims to address non-compliance by holding agencies and umbrella companies jointly responsible for meeting tax obligations in their labour supply chains. The move is intended to increase accountability but also places greater compliance responsibility on agencies throughout the supply chain.

The research findings suggest agencies are aware of and concerned by the compliance risks presented by the new legal framework, with many looking towards technology as a solution to manage and monitor compliance, minimise the risk of errors, and ensure regulatory requirements are met.

The survey, carried out in early January, covered 202 finance department employees from temporary recruitment agencies and adhered to the standards of the UK Market Research Society code of conduct. The results highlight a sector in transition, seeking digital tools and support to navigate new regulatory burdens expected in 2026.