From April 2026, HMRC is expected to bring in a new joint and several liability (JSL) rule for supply chains that use umbrella companies. If the umbrella company doesn’t pay the correct PAYE tax or National Insurance, HMRC will be able to recover the full amount from others in the chain – like the recruitment agency or end client.
This represents a significant shift in risk and the responsibilities for recruiters.
The new measures are intended to deter tax avoidance schemes, which have thrived for decades, and promote compliance in the umbrella sector, ahead of the umbrella industry itself being regulated for the first time in 2027.
Clearly, the umbrella industry needs to be regulated, and rogue operators need to be permanently excluded from the supply chain.
However, the new rules also raise the stakes for bona fide businesses, who may unwittingly find themselves inheriting large tax bills from unscrupulous players in the contractor supply chain.
Note: Although HMRC has strongly indicated its intentions to introduce this new measure, we won’t know the full details until the draft Finance Bill is published in July 2025. And then, things may change further before the planned implementation date.
What is Joint and Several Liability?
Put simply, joint and several liability means that if one party in the contractual chain fails to collect and pay the tax it owes, HMRC can pursue one or more of the other parties for the entire unpaid tax
This concept is already in use in some areas of tax law, with which contractors will be more than familiar, particularly the off-payroll working rules and Managed Service Company (MSC) legislation.
Under the new umbrella proposed rules, if the umbrella company fails to account for PAYE tax or NICs on a contractor’s pay, HMRC will be able to collect the unpaid amounts from the recruitment agency. If there is no agency, HMRC may seek recovery from the end client.
Unlike some other compliance frameworks, the proposed JSL rules do not include a reasonable care defence. That means an agency could still be liable for unpaid taxes, even if it conducted thorough checks and believed everything was in order.
Timeline and background
The measure is being introduced as part of HMRC’s broader crackdown on non-compliance in the umbrella market. It follows several years of consultation and industry concern over disguised remuneration schemes, tax evasion, and rogue providers.
The government announced the findings of its consultation on tackling non-compliance in the industry in its official response to the consultation in March 2025. It presented the results of three options, one of which was joint and several liability.
During a meeting held in June, HMRC confirmed with industry stakeholders that joint and several liability will take effect from April 2026, with agencies (and sometimes end clients) being liable for unpaid umbrella tax.
Draft legislation will be published on 21st July 2025 (L-Day).
News of this briefing prompted a wave of guidance articles across the industry in June, despite no new official documents being released at that time.
| Date | Milestone |
|---|---|
| March 2025 | The government publishes responses to the consultation on tackling umbrella non-compliance |
| June 2024 | HMRC informally briefed industry stakeholders on the likely structure and timeline of the new rules |
| July 2025 | Draft legislation expected via the annual Finance Bill (L-Day) |
| Late 2025 | The Employment Rights Bill is expected to define umbrella companies in law |
| April 2026 | Proposed joint and several liability rules take effect across all umbrella supply chains |
How will it work?
Umbrella companies will continue to employ contractors and operate PAYE on their income. They will be responsible for calculating tax, filing RTI submissions, and paying HMRC.
But under the JSL regime, if those payments are not made correctly and on time, HMRC can issue a debt notice to another party in the chain. This could be the agency that placed the contractor or, if no agency is involved, the end client.
The agency or client would then be legally responsible for settling the full amount of tax due, including any penalties or interest. In some cases, this could be for work that took place months earlier, even if the umbrella has since ceased trading.
Umbrella industry feeling ‘much more hopeful’
Lucy Smith from Clarity Umbrella shared her thoughts with us on the possibility of a new joint and several liability (JSL) rule.
As we wait for L Day, now confirmed as 21st July, the industry is left feeling much more hopeful about a better outcome for the tax changes due in April 2026.
Industry had lobbied for either amends or a delay to the original proposal of the amendment to the PAYE reference for the payment to contractors, but now look more hopeful for the Joint & Several Liability option.
It is great to see that HMRC and the Treasury have a better understanding of the issues that the original proposals could have caused.
Although we are not yet in the clear, we can see that this appears to be a much more workable solution. This will place an emphasis on the agencies to ensure they are working with accredited umbrella companies that can assist them with their due diligence, thereby ensuring they are at no risk.
Regulation of the umbrella industry itself is set to follow in 2027, but all eyes are on 21st July.
Umbrella regulation will follow, but for now, we can hope for a better outcome to what has been an unsettling period for the industry, agencies, and contractors.
One thing to make very clear: these changes are about taxation, not regulation. Regulation is a separate piece and will follow; this just amends tax liabilities. It is causing confusion for many!
What triggers a tax liability?
Industry sources suggest that joint and several liability (JSL) will kick in if an umbrella company fails to meet its PAYE or National Insurance obligations under the PAYE Regulations 2003.
For example, if an umbrella processes payroll in April but doesn’t pay HMRC by the May deadline, the tax debt could be passed up the chain.
Agencies are expected to monitor umbrella payments in real-time or via a verified audit trail. Even short delays in PAYE payments may be enough to expose the agency to enforcement action.
Who is affected by the proposed new rules?
Recruitment agencies
The most exposed under the new rules. Even if they outsource payroll to a third-party umbrella, they can still be held liable if the tax isn’t paid. This is likely to increase demand for tighter contracts, real-time checks, and verified compliance processes.
End clients
May also be caught if they work directly with umbrella companies and do not use an agency. In such cases, they take on the full liability risk.
Umbrella companies
Remain the default employer and the first port of call for HMRC. However, if they collapse or disappear, the tax debt can now be passed up the chain legally.
Contractors
They are not directly liable under JSL rules, but they may suffer if their umbrella company is non-compliant. This could include missed payments, delayed tax refunds, or involvement in retrospective investigations.
What should recruitment agencies do now?
Agencies should begin reviewing their umbrella company supply chains immediately. Key actions include:
- Conducting thorough financial and compliance checks on umbrella partners
- Using only accredited providers (e.g. FCSA)
- Requiring real-time reporting of PAYE payments and RTI submissions – e.g. SafeRec.
- Including audit and indemnity clauses in agency-umbrella contracts
- Reviewing PAYE payment cycles to detect shortfalls before liability can transfer
What should contractors do?
Umbrella company contractors should consider the following points:
- Ensure your umbrella is accredited by a recognised body (e.g. FCSA)
- Check your payslips and confirm correct PAYE deductions – ideally via SafeRec or similar software
- Ask your agency if the umbrellas on their PSLs are audited for compliance.
- Avoid schemes which offer artificially high levels of take-home pay
- Raise concerns if you notice any unusual deductions from your payslips
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