Umbrella tax liability rules go live on 6th April – what changes now

From 6th April 2026, the joint and several liability (JSL) rules for umbrella company supply chains take effect.

The legislation applies to new and existing labour supply chains, and to money paid to contractors on or after 6th April 2026.

What changes from 6 April?

Historically, HMRC could pursue an umbrella company if it failed to pay its PAYE liabilities, as it could with any other type of business.

From 6th April, HMRC will have the power to pursue other parties in the supply chain, as well as the umbrella.

If a worker is supplied through an umbrella company and the payroll taxes are not paid in full, and on time, HMRC can recover the shortfall from another party in the chain on a joint and several basis.

In most cases, that will be the agency which holds the contract with the end client. If there is no agency in the chain, the liability may instead fall upon the client.

The new rules were introduced under the Finance Act 2026, alongside corresponding National Insurance provisions.

A significant shift

Although it is clear that the new rules signify a shift in risk up the supply chain, which is a big change in itself, the JSL rules also mean that recruiters have to fundamentally reassess their relationships with umbrella companies.

Recruiters now have to take extreme care when choosing umbrella company partners.

No ‘reasonable care’ defence

If a party further up the chain inherits the tax liability, they cannot claim ‘reasonable care’ as a defence. It is one of the tougher elements of the JSL legislation.

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Under the off-payroll IR35 rules, for example, the concept of reasonable care is a core element in the status determination process. Under the umbrella JSL rules, there is no equivalent statutory defence.

So even if an agency has undertaken extensive checks into its umbrella suppliers, it can still face a potentially ruinous tax liability if the umbrella turns out to be non-compliant or is insolvent.

This potential inherited risk has already had a significant effect within the umbrella industry.

How agencies have had to adapt

Recruitment agencies should have already put plans in place to deal with the new rules.

In practice, agencies should already have reviewed which umbrellas are on their PSLs, how payroll evidence is obtained, what contractual protections are in place, and whether they have real-time access to payroll deductions and RTI reporting.

Some agencies may decide to reduce the number of umbrella providers they work with.

Others may reconsider operating their own payroll or using different engagement models in parts of the business where the compliance risk appears too high.

None of these options removes the risk entirely; they just shift it somewhere else.

The impact of JSL on contractors

Although contractors are not the primary target of these rules, they are unlikely to be unaffected.

The changes will reduce the total number of umbrella companies operating, and contractors may face even tighter preferred supplier (PSL) lists from agencies.

There could be additional checks which delay the time it takes to get fully set up with a new umbrella provider.

The government itself has said some agencies and end clients may decide to move workers onto their own payroll rather than continue using umbrella companies in the same way. It remains to be seen if this will happen in reality.

It is separate from IR35, but it will still affect IR35 decisions

There is no legal link between the JSL and IR35 rules.

If you are working through an umbrella company, you are an employee of that umbrella and paid via PAYE. IR35 applies to contractors who engage with clients via their own limited companies.

However, the introduction of the off-payroll rules resulted in many more contractors joining umbrella companies – some out of choice, but many more due to the ‘blanket banning’ of limited company contractors by risk-averse clients.

As a result, hiring umbrella company workers now carries its own risk for clients.

The longterm impact of the JSL legislation

The JSL changes are intended to reduce non-compliance in the umbrella market, an issue that has persisted for many years.

The government is expected to take further action in 2027 with more widespread regulation of the umbrella industry as a whole.

The changes may reduce the total number of umbrellas operating in the market, and we could see significant consolidation within the industry.

Over time, some clients may revisit how they engage contractors altogether in a delicate balancing act. For some, that could mean revisiting limited company contractor engagements, although that brings off-payroll risk back into play.