Payroll should make a business safer. Done badly, it can do the opposite.
Across temporary labour, umbrella companies, agencies and outsourced payroll arrangements, too many businesses still rely on providers without asking the basic questions: who employs the worker, who operates PAYE, what gets reported to HMRC, and who carries the liability if the chain is wrong?
That is no longer good enough.
HMRC guidance is clear that an employment intermediary is someone who makes arrangements for an individual to work for a third party, or pays for work done for a third party. Where the intermediary does not operate PAYE on worker payments, it may have reporting obligations to HMRC. In labour supply chains involving umbrella companies, the rules are tightening further from 6 April 2026.
The real warning for clients is simple: if a provider cannot explain the payroll chain clearly, they should not be trusted with it.
We have already seen the problem in practice. A payroll provider recently emailed a client stating: "we are your one and only subcontractor." In the same exchange, the provider warned the client that they should not use Genius because Genius was supposedly acting like a recruitment company.
That is not a minor wording issue. It goes to the heart of the arrangement.
If a payroll provider tells a client it is the client's "one and only subcontractor," it is representing itself as something very different from a genuine payroll intermediary. A subcontractor is normally engaged to perform contracted works or services. A payroll intermediary, umbrella, agency or labour-supply provider is part of a worker/payment/tax chain. Those are not the same thing.
If the provider is not actually delivering construction services as a construction subcontractor, but is instead handling workers, payroll, intermediary arrangements or labour supply, then describing itself in contract form as the "one and only subcontractor" creates a serious compliance risk. It can make the client's paperwork say one thing while the operational reality says another.
That is exactly the kind of mismatch HMRC does not like. If a client later faces an HMRC challenge, the arrangement can fall over because the signed terms do not reflect the true relationship. The client may have signed documents stating it is using a subcontractor when, in reality, it is using an intermediary/payroll labour-supply arrangement.
That puts the client in a vulnerable position. It means the contract says one thing while the actual service being provided is something else. If the provider is drafting terms that describe itself as a subcontractor when it is really providing payroll/intermediary labour-supply services, the contract is misrepresenting the true arrangement.
If that misdescription is being used to reduce VAT, PAYE, National Insurance or other tax exposure, HMRC will treat the arrangement as a tax avoidance and compliance issue. This is not a harmless wording problem. It is the kind of contract fiction that can leave the client exposed to HMRC challenge, back tax, penalties, interest and reputational damage.
This is a severe matter. Clients should not sign contract wording that pretends a payroll/intermediary provider is simply a subcontractor if that is not what is really happening. If the paperwork lies about the service, the client is the one left holding the risk.
What a genuine intermediary should be able to show
A compliant provider should be able to answer direct questions without smoke and mirrors:
Who is the legal employer of the worker?
Who operates PAYE?
What PAYE reference is being used?
What deductions are taken before the worker receives gross pay?
What deductions are taken from the worker's pay?
Does the worker receive a Key Information Document where required?
Are payslips and reconciliation statements clear?
Are payments processed through PAYE, not hidden as loans, advances or other non-taxable labels?
Is there evidence that HMRC filings and payments are being made?
Is there a clear contract and liability chain?
If those answers are vague, the risk is not vague. It is sitting with the client, the agency, the worker or all three.
The "one and only subcontractor" wording is exactly the kind of phrase clients should challenge. A genuine payroll intermediary should not need to hide behind subcontractor language if it is actually taking responsibility for workers, payroll, PAYE and intermediary compliance. If the provider is selling an intermediary/payroll service but signing terms as if it is a subcontractor, the paperwork does not match the service being provided. That is not just confusing. It is dangerous for the client.
The red flags
Watch for providers who:
claim to be "HMRC approved" without evidence;
promise unusually high take-home pay;
split payments between payslip salary and separate bank payments;
describe earnings as loans, grants, advances, profit shares or similar labels;
refuse to provide payslip or PAYE evidence;
cannot explain employer National Insurance, pension, holiday pay and umbrella margin deductions;
move workers through different companies without clear explanation;
hide behind subcontracted payroll chains;
avoid written answers on who is responsible for PAYE.
HMRC says it does not approve or endorse umbrella companies or tax avoidance schemes. A provider using "approved" language should be challenged immediately.
This is not paperwork. It is the tax position.
Some payroll companies are not merely making a drafting mistake. They are describing their services in a way that makes the client believe they are buying one thing, while the actual working arrangement is something else.
If a payroll company drafts a contract saying it is the client's subcontractor, but in reality it is supplying a payroll/intermediary service, that contract is lying about the commercial relationship. If the purpose or effect is to disguise employment status, avoid VAT, avoid PAYE, reduce National Insurance exposure or move tax risk away from where it belongs, HMRC will treat that as a serious compliance issue.
The client may not understand the avoidance risk. That is exactly why the client is vulnerable. They sign terms believing the provider has structured things correctly, but if HMRC later looks through the wording and tests the real arrangement, the contract can collapse under scrutiny.
That is when the client discovers the truth: the provider's wording does not protect them. It exposes them.
Why clients are exposed
The danger is not just that a worker is underpaid or confused. HMRC warns that businesses using non-compliant umbrella companies can face compliance checks, penalties, tax liabilities, reputational damage and loss of business.
From April 2026, labour supply chains that include umbrella companies carry sharper PAYE responsibility for the agency with the client contract, or for the end client where there is no agency. HMRC can recover underpaid PAYE from them if the umbrella has not paid correctly.
That changes the commercial calculation. Choosing a payroll provider is not an admin decision. It is a risk decision.
Where a provider's own contract wording says it is the client's "one and only subcontractor," clients should pause before accepting any claim that it is delivering a genuine intermediary payroll service. If the legal role, payroll role, worker status position and HMRC reporting role do not line up, the client is exposed when HMRC, workers or agencies challenge the arrangement. A contract that dresses an intermediary/payroll labour-supply arrangement up as subcontracting is not just poor wording. It is a direct warning sign that the true employment and tax position is being disguised.
The Genius view.
A genuine intermediary should reduce risk, not hide it.
Clients should stop accepting vague payroll answers. Ask for the contract chain. Ask who employs the worker. Ask who runs PAYE. Ask for sample payslip and reconciliation evidence. Ask what is reported to HMRC. Ask what happens if PAYE is wrong
If the provider cannot explain it, they probably should not be doing it.
