What's the one big misconception about Joint & Several Liability (JSL)?
From April 6th 2026, parties in the temporary labour supply chain will operate under a materially different risk framework from HMRC.
Joint and Several Liability (JSL) will require end-clients, Managed Service Providers (MSPs) and recruitment agencies to understand how contractors are engaged within their supply chain and to ensure that the correct amount of tax is accurately calculated, disclosed and paid to HMRC.
But as the temporary labour market moves toward real-time tax auditing and a stronger legal compliance framework, a misconception has emerged, writes Sam Amos, a director at real-time auditing firm SafeRec, an AI technology provider of payroll compliance solutions.
The big misconception is that the risk is solely about whether the tax liability has been paid to HMRC.
In some cases, this misunderstanding is taken further, implying that if a party other than the umbrella company pays the PAYE bill, the problem is resolved. This narrative overlooks where the risk actually originates, and, in some instances, reflects a lack of understanding about how payroll risk is created in the first place.
Is tax liability risk simple or multidimensional?
Tax liability risk for parties in the supply chain is multidimensional.
It is about whether taxes are paid to HMRC, but it is also about how payroll has been processed.
The good news is that some five risks resulting from such misconception(s) about JSL are measurable, observable and, importantly, preventable.
Risk 1: When people get it wrong BY MISTAKE
It is often overlooked, but the payroll process is, of course, operated by people.
When people are involved, sometimes mistakes happen, such as:
- Entering an incorrect Date Of Birth (DOB) in the system that will affect the NI category letter for tax calculation.
- Entering a wrong tax code.
- Switching rate and unit.
- Simply ticking the wrong tick box in their payroll software.
Is JSL umbrella company legislation only triggered by big payroll errors?
All of these arguably small mistakes can impact the tax calculation. It doesn't mean it is intentional, or necessarily a big mistake, but just that the tax calculation needs to be operated compliantly.
Under JSL, payroll cannot be treated as routine administration. It is more like operating the financial control system of the business. Even just a small input error can produce a materially different outcome.
Risk 2: When people get it wrong BY DESIGN
The second risk arises where payroll is structured in a way that intentionally reduces tax.
These arrangements do not need to be complex to pass surface-level checks. They can appear compliant in isolation while still reducing the overall tax liability improperly.
What are examples of payroll systems being rigged to intentionally reduce taxes?
A few examples are:
- The addition of artificial employer costs.
- The misuse of salary sacrifice arrangements.
- The processing of reimbursable expenses as tax-free without the required supporting evidence.
On paper, these adjustments may look administrative. In practice, they directly alter how much tax is calculated and due to HMRC.
Do payslips continue to show failure rates despite April not being far off?
Payslips that are manually uploaded into SafeRec for non-SafeRec-certified umbrella companies, rather than audited in real time as part of the SafeRec Certification framework, continue to show significant failure rates.
This pattern has remained consistent since 2021, when we began auditing payslips using our technology. On average, only between 65 and 75 per cent of manually uploaded umbrella and agency payslips pass our audit each month.
Despite April 2026 not being far off, this 25-30% payslip failure rate demonstrates that tax structuring risk remains present in parts of the temporary labour supply chain at both the agency and umbrella company levels.
Risk 3: When payroll SOFTWARE gets it wrong
One of the most overlooked risks sits within the payroll software used by the umbrella company or the recruitment agency. Payroll systems are widely relied upon, yet their underlying tax calculations are not independently audited as a matter of course.
Payroll software that is recognised by HMRC is often misunderstood.
HMRC-recognised payroll software: what it does and doesn't do
HMRC recognition means that the software has met the technical requirements to submit data correctly under Real Time Information reporting. It confirms technical compatibility for filing purposes. It does not certify that every tax calculation scenario has been independently tested for compliance.
An increasing number of payroll systems claim to be compliant by design or to remove liability under Joint and Several Liability. In practice, the UK tax system contains multiple 'edge' cases and worker-specific variables that can materially affect tax outcomes.
Where software has not been independently audited or tested at scale, a genuine risk remains.
A significant proportion of RTI errors that we have identified originate from system design issues, rather than deliberate human behaviour. This makes independent third-party auditing an important control within a compliance framework.
Risk 4: When taxes are NOT paid
Umbrella company insolvency remains a well-understood and documented risk within the temporary labour market. Where PAYE has been deducted from contractors but not paid to HMRC, the liability does not disappear. Under the new JSL legislation, the relevant party in the supply chain can become responsible for the unpaid amount.
This risk is not theoretical.
Deductions may appear correctly on a payslip and RTI submissions may have been made, yet if the corresponding payment is not settled with HMRC, an exposure remains.
Once HMRC's JSL applies, why is evidence important?
The existence of a deduction does not equal the discharge of a liability. For that reason, recruitment agencies, MSPs and other parties in the supply chain must obtain evidence that the tax has actually been paid.
This evidence should be provided regularly, whether weekly or monthly, depending on the umbrella's payment cycle, and must demonstrate that the correct amount has been received by HMRC and that no balance is outstanding.
Under JSL, assurance must extend beyond payroll processing and reporting. It must include confirmation of payment.
Risk 5: When liabilities are ARTIFICIALLY offset
In November 2025, HMRC issued a warning regarding arrangements involving tax credits that are used to reduce tax liabilities.
In the warned against model, payroll may appear compliant. Taxes are calculated correctly, and Real Time Information submissions are made to HMRC. The issue arises at the point of settlement.
How does the fraudulent tax credit offset model claim to work?
Instead of paying the PAYE liability in cash, the amount due is offset against tax credits fraudulently obtained. On the surface, HMRC records may show no outstanding balance. However, the underlying liability has not been settled.
In such cases, even if a third-party attempts to pay HMRC directly, the payment may simply increase the credit balance of the umbrella company if no liability is showing as due. This creates a complex risk within the HMRC tax account itself.
Can calculations and RTI submissions be relied on from 2026/27?
From April 6th 2026, reliance on payroll calculations and RTI submissions alone is not sufficient.
Oversight from tax year 2026-27 must also consider how liabilities are being cleared within the HMRC account and whether offsets are legitimate.
Key takeaway as JSL on April 6th 2026 fast-approaches…
The Joint and Several Liability legislation, effective from 06.04.26, does not require recruitment agencies or MSPs to become tax specialists. It does require a shift away from trust-based assurance and towards evidence-led oversight.
An effective framework must address both legal and tax compliance.
What does full payroll lifecycle JSL compliance look like?
In addition, compliance under JSL cannot be viewed in isolation and must extend across the full payroll lifecycle, including:
Accurate tax calculation.
Correct Real Time Information reporting.
Confirmation that payments have been received by HMRC.
Assurance that liabilities have not been artificially reduced or offset within the HMRC account.
Finally, here's what JSL steps contractors' recruitment agencies can take…
The framework to provide this level of visibility already exists. Contractor recruitment agencies are no longer limited to relying on declarations or periodic documents.
It is now possible to see how payroll is being processed, how tax is being reported, and whether it is being paid correctly across the supply chain.
To reiterate, and to help banish the misconception that JSL is only about whether the tax liability has been paid to HMRC, remind yourself and others — under Joint & Several Liability, compliance must be proven across the entire payroll lifecycle.
Start the discussion
Working contractors, accountants and recruiters chime in on the issues raised in this article.
No comments yet — be the first to chip in.