HMRC’s New Payslip Fraud Guidance: Why it Strengthens the Case for Tax Liability Insurance

What HMRC's new guidance means for workers, why payslip checks are only part of the solution, and why recruitment businesses should combine verified compliance with financial protection.

On 25 August 2026, HMRC published How to avoid payslip fraud, its new guidance for agency workers, temporary workers, contractors and individuals paid through umbrella or payroll companies. It explains what payslip fraud can look like, the warning signs workers should recognise, the records they can check along with how concerns can be reported.

HMRC defines payslip fraud as:

1. Including a payslip which shows deductions that have not been paid to HMRC
2. Incorrect information about pay or deductions
3. Having no payslip at all.

Our first reaction is simple: this guidance is welcome.

There is, however, a second message that recruitment agencies, MSPs and end clients should take from HMRC's guidance:

A payslip can be evidence of what was reported. It is not, by itself, evidence that the underlying tax liability has been settled.

That distinction has become significantly more important since 6 April 2026. Under Chapter 11 of Part 2 of ITEPA 2003, where the rules apply, the relevant agency or end client can become Jointly and Severally Liable (referred to as JSL) with the umbrella company for any outstanding PAYE tax and NICs due. HMRC's guidance is explicit: if an umbrella company has not paid the correct amount of PAYE and National Insurance, HMRC can recover the underpayment from the agency or end client.

That changes the risk for recruitment businesses.

That is where a combination of SafeRec certified compliance and specialist Tax Liability Insurance from Orbio can help to reduce those risks.

The irony of HMRC's new payslip fraud guidance is that, while it is written primarily for workers, it highlights precisely why businesses need a much more sophisticated approach.

The result is a simple but important change in mindset:

Due diligence is no longer just about choosing the right supplier. It is about protecting the business that chooses them.

And that means considering both assurance and insurance.

A useful addition for workers

HMRC has taken several important steps to make information about umbrella companies, payroll fraud and tax avoidance more accessible.

It maintains a public list of named tax avoidance schemes, promoters, enablers and suppliers, provides an umbrella company pay calculator, and has now published dedicated guidance explaining payslip fraud and the warning signs workers should recognise.

No guidance page can replace enforcement; education is an important part of prevention, and HMRC deserves credit for giving workers more practical information and tools.

Why Chapter 11 changes the risk for recruitment businesses

Previously, an agency could view the umbrella's payroll tax obligations primarily as the umbrella's responsibility.

Now, an agency needs to consider the risk as part of its own supply chain governance and balance sheet protection.

The potential exposure can also be substantial.

Example: An Agency has 1 worker paid every week via an Umbrella company at a rate of £25 per hour. Each week the approx. tax liability will be c.£300; now multiply that to give an example of 100 workers and that weekly figure increases to c.£30,000. Whilst variables such as margin and personal tax allowance can vary, the potential tax liability exposure for those 100 workers sits around c.£1.5 million annually.

These are illustrative examples rather than predictions of actual liabilities, but they demonstrate the scale of the risk that can sit behind an outsourced payroll relationship.

The important point is not that every agency will face those numbers.

It is that a tax liability that appears remote at an individual worker level, can become a very material corporate exposure when multiplied across a workforce.

That is why simply choosing a reputable umbrella is no longer enough.

The SafeRec + Orbio model

Meaningful supply chain assurance cannot come from a single document or a single annual check.

It requires a continuous chain of evidence.

1. Understand the business behind the payroll

Legal and operational due diligence should examine ownership and control, Companies House history, connected entities, contracts, subcontracting, policies and the actual operating model.

The objective is to understand who is responsible for employing workers, operating payroll and meeting the relevant tax obligations.

2. Audit the payslip

The payslip should first be tested independently, including gross and taxable pay, Income Tax, National Insurance, pension, student loan and other relevant deductions.

This establishes whether the worker appears to have been paid correctly.

3. Reconcile the payslip with RTI

The payroll calculation should then be reconciled with the RTI submission.

This answers a different question:

Was the payroll information reported to HMRC consistently with what the worker was actually paid?

4. Establish whether the HMRC liability was actually settled

This is the control that a payslip cannot provide.

Businesses should establish whether the liability recorded with HMRC has actually been paid. Furthermore, it should know whether there are outstanding amounts or payment arrangements that could affect the position.

A screenshot alone should not be treated as definitive evidence. It is a static image selected by the party being checked and may not establish that the information is complete, current or unaltered.

5. Capture payroll evidence at source

HMRC correctly warns that fraudulent payslips can look genuine.

Payroll evidence should therefore be captured as close to source and in real time as possible, rather than simply relying on documents selected and forwarded after the event.

6. Make the outcome visible

Workers should be able to see evidence relating to their own pay.

Agencies should be able to understand which workers have been audited and reconcile the audited population against the workers they supplied.

7. Add financial protection

This is the step that is often missing.

Even the strongest compliance framework cannot guarantee that a future dispute, investigation or liability will never arise.

That is why Tax Liability Insurance should be considered part of the overall risk management architecture, rather than an optional extra once everything else has been done.

What value does Orbio add?

The value of having Tax Liability Insurance in place becomes clearer when viewed from the perspective of the agency's balance sheet.

Protecting cash flow

A significant HMRC liability can arrive at exactly the wrong time.

For an agency, the issue is not simply the tax itself. A significant and unexpected liability can affect working capital, payroll funding, investment decisions and the ability to continue growing.

Having appropriate insurance in place provides an additional financial backstop against an insured liability.

Protecting the balance sheet

Chapter 11 moves tax risk closer to the recruitment business.

An agency may have selected a reputable umbrella, implemented appropriate controls and acted in good faith, yet still face an HMRC challenge.

Insurance provides a mechanism for transferring an agreed portion of that residual risk away from the agency's balance sheet.

Protecting growth

Recruitment businesses should not have to choose between growth and risk management.

A strong compliance framework combined with specialist insurance allows agencies to build a scalable process around their umbrella supply chain rather than relying on individual relationships or informal assurances.

Orbio's Tax Liability Insurance is a financial backstop designed to give recruitment businesses confidence as they operate under the new rules.

Strengthening client confidence

There is also a commercial benefit.

Clients increasingly want to know not only that their recruitment partners have policies and procedures, but that those controls are independently evidenced and that material residual risks have been considered.

A SafeRec certified supply chain with appropriate Orbio insurance, can demonstrate a more mature approach:

Verified compliance plus financial protection.

Protecting business value

Uninsured tax exposure can also become an issue during investment, acquisition or due diligence.

Orbio has highlighted the importance of being able to demonstrate audited supply chains, verified PAYE/NIC compliance and insurance protection when an agency is being scrutinised by investors or buyers.

Therefore, for business owners, Tax Liability Insurance is not simply about what happens if HMRC sends a letter, it is about making the risk visible, managed and defensible today.

The existence of insurance does not make a non-compliant umbrella company acceptable.

In fact, Orbio's model is deliberately built around verified compliance. Its Tax Liability Insurance works with SafeRec certified umbrella companies and protection is linked to SafeRec audit evidence.

That is exactly how insurance should work in this environment.

First, reduce the probability of a problem.

Then, evidence that the controls are operating.

Finally, insure the residual financial risk.

It is the combination that provides the strongest position.

A legal review does not prove payroll execution.

A correct payslip does not prove that matching RTI was submitted.

Matching RTI does not prove that HMRC was paid.

Evidence that HMRC was paid does not eliminate the possibility of a future challenge.

And none of those controls protects the agency's balance sheet in the same way as an appropriate insurance policy.

Each layer answers a different question.

For businesses operating with umbrella companies, the stronger response is to build a layered model:

SafeRec certification and payroll assurance to reduce and evidence compliance risk.

Orbio's Tax Liability Insurance provides an additional financial backstop against insured HMRC tax liabilities.

Together, those controls provide something that neither can provide on its own: confidence that the risk has been actively managed, independently evidenced and financially protected.

You do not buy insurance because you expect your umbrella partner to fail.

You buy it because the consequences of being wrong can be far greater than the cost of being protected.

Explore Orbio's specialist insurance solutions for recruitment businesses or speak to the Orbio team about Tax Liability Insurance and how the cover may fit alongside your existing SafeRec compliance arrangements.

You can also read HMRC's full payslip fraud guidance.

This article provides general information only and does not constitute legal, tax or insurance advice. Insurance cover is subject to the applicable policy wording, terms, conditions, limits and exclusions. Businesses should obtain appropriate professional advice before making decisions about tax liability, compliance or insurance.