​The Finance Bill 2025-26 will reshape how financial services businesses engage contractors, making compliance a major concern. From April 2026, PAYE and National Insurance (NI) deductions will become the responsibility of recruitment agencies—or the end client if no agency is involved.

This shift brings significant compliance risks for firms hiring contractors directly. With increased HMRC scrutiny, potential tax liabilities, and heavier administrative burdens, now is the time to rethink contractor hiring strategies before these risks become a reality.

What’s Changing? Understanding the PAYE Shift
Currently, umbrella companies manage PAYE and NI deductions, but from 2026, agencies (or businesses) will be liable for ensuring compliance. The UK government expects this reform to recoup £895 million in lost tax revenue (Computer Weekly).

For businesses hiring contractors directly, this means:
•Greater exposure to HMRC audits and tax investigations
•Potential financial penalties for incorrect PAYE deductions
•Additional compliance and payroll responsibilities

Waiting until 2026 to address these changes is not an option—businesses that don’t prepare now risk serious financial and operational consequences.

The Risks of Engaging Contractors Directly
The financial services sector already faces a rising compliance burden, with regulatory demands increasing 35% in the past year alone (Dun & Bradstreet).
For firms that continue hiring contractors directly, the risks include:
•Compliance Failures: Incorrect PAYE deductions or worker misclassification can lead to significant tax fines and legal repercussions.
•Increased Administration: Payroll, tax filings, and reporting obligations will consume valuable internal resources.
•Financial Instability: If HMRC finds non-compliance, businesses could face unexpected tax liabilities and reputational damage.

Why Financial Services Firms Must Use a Recruitment Agency
Recruitment agencies offer a safer, more efficient way to engage contractors while ensuring full compliance with the new regulations.
•Compliance Protection: Agencies manage PAYE and tax deductions, shielding businesses from financial risk.
•Reduced Admin Costs: Payroll, onboarding, and IR35 assessments are handled externally, freeing up internal teams.
•Faster Access to Talent: Agencies maintain pre-vetted contractor networks, reducing hiring time and costs.
•Lower Financial Risk: With compliance responsibility shifting to the agency, businesses are protected from unexpected tax bills and penalties.

The Financial Case for Using an Agency
Some firms assume direct contractor engagement saves money, but in reality, compliance mistakes can be far more expensive.
•HMRC penalties for failing to comply can be significant, turning non-compliance into a costly risk
•Legal and payroll compliance teams are expensive—outsourcing these processes to an agency provides fixed, predictable costs.
•Firms avoiding the PAYE shift now may struggle to secure compliant contractors later, leading to hiring delays and talent shortages.

​

Act Now—Waiting Will Cost You
With the Finance Bill 2025-26 approaching fast, financial services firms cannot afford to wait.

The longer businesses delay adapting to these changes, the higher the risk of financial penalties, compliance failures, and recruitment challenges.
To stay ahead, firms should:
•Assess Contractor Engagement Models Now – Identify compliance gaps before the new regulations take effect.
•Partner with a Specialist Recruitment Agency Immediately – Avoid last-minute disruptions by working with an agency that understands the financial services sector and PAYE compliance.
•Educate Hiring Teams on Urgent Changes – Finance and HR teams need to adjust hiring strategies now, not in 2026.

As a CFO, I see first-hand how legislative changes impact financial planning, risk management, and overall business strategy. The Finance Bill 2025-26 is not just an HR or payroll issue—it’s a financial risk that will affect budgets, tax liabilities, and operational efficiency.

Financial services firms must make a decision—either take on the financial and legal risks of hiring contractors directly or partner with a recruitment agency that ensures compliance, protects your business, and secures top talent seamlessly.

Recruitment agencies are already preparing for the transition. If your firm isn’t, you’re already behind.

Get in touch with Skillfinder today to discuss how we can help you navigate these changes before it’s too late.