Joint and Several Liability for UK umbrella company market comes into force

Joint and Several Liability legislation governing umbrella companies and their clients is now in force, following its passing into UK law on Monday, April 6th 2026.

The new Joint & Several Liability (JSL) legislation represents a significant shift in the umbrella company market, which HM Treasury called contractors to give evidence about as far back as November 2021.

Yesterday’s JSL legislation from HM Revenue & Customs (HMRC) is widely seen as the culmination of that five-year journey, writes umbrella company market expert Lucy Smith, founder of Clarity Umbrella.

Key takeaways

• HMRC spoke out yesterday about JSL, on the day that the legislation passed into law, warning of “significant changes to PAYE responsibilities”.
• JSL provides HMRC with an easier path to chase umbrellas’ unpaid tax bills; protects contractors, and shifts ‘due diligence’ burdens to agencies.
• The JSL effect for agencies of ‘picking up the HMRC tab’ for a non-compliant brolly is making agencies reduce the number of brollies on PSLs.
• With agencies starting to seek more than just compliance badges/promises, contractors’ choice, rights, and roles look worse off.
• As JSL starts to bed in, larger umbrellas appear to be best-positioned, but the hope must be that compliance, rather than size, starts to call the shots.

What did HMRC say yesterday, as Joint & Several Liability took effect?

As HMRC itself signalled yesterday afternoon, the JSL framework is an overhaul of how recruitment agencies — and other clients of umbrella companies — work with umbrella companies and, by extension, work with umbrella company contractors too.

Updating its December 2024 guidance “Work out pay from an umbrella company,” on April 6th 2026, HMRC said:

“From 6 April 2026, significant changes to PAYE responsibilities will come into effect for labour supply chains, that include umbrella companies.

“If you are an agency or end client, the rules mean that you are responsible for making sure PAYE is operated correctly when an umbrella company employs your workers. If we find an umbrella company has not paid the correct amount of PAYE to us, we may recover it from you”.

What is the aim of Joint and Several Liability?

My take, based on my 14 years serving the umbrella company market, is that these new Joint & Several Liability rules are aimed at ensuring HMRC has an easier path to pursue unpaid tax liabilities in the temporary labour supply chain.

JSL is also about making sure that contractors working through umbrella companies receive better protection. Indeed, under the April 6th rules, agencies are compelled to perform greater ‘due diligence’ checks on the umbrella companies that they choose to engage with. And thus, the potential for tax avoidance schemes (which, coincidentally, dent the Treasury’s coffers) should be cut out.

Aren’t umbrella companies already accountable to HMRC?

Umbrella companies have always been accountable for any potential unpaid taxes or National Insurance Contributions (NICs).

But the new JSL legislation gives new powers to HMRC to pursue agencies in the chain, right through to the Managed Service Providers and in certain cases, even the end client.

Why Joint and Several Liability?

The JSL legislation is designed to address the growing concern around unpaid taxes within the non-compliant area of the umbrella company market.

Under the now in-force JSL legislation, umbrella companies will be held jointly and severally liable for any tax debts they owe, alongside the recruitment agency or MSP, responsible for the work.

What does Joint & Several Liability mean, essentially?

Essentially, JSL means that if a contractor’s umbrella company fails to pay the correct amount of PAYE tax, the agency may now find itself directly liable for these unpaid amounts, even though they were not responsible for the initial failure.

The effect, for the agency, of this ‘picking up the HMRC tab’ for a short-falling umbrella pushes the emphasis on the agency (or the Managed Service Provider) to perform rigorous ‘due diligence’ checks on the umbrella company to ensure that there isn’t going to be a shortfall to HMRC, before engaging in any contractual arrangements.

How does the shift from JSL impact contractors?

What we have seen in the run-up to the April 6th JSL legislation is recruitment agencies reducing the number of umbrella companies that they will work with.

This reduction is now restricting contractors’ access to their choice of umbrella.

Although the actions of agencies are somewhat understandable, for contractors working through umbrella companies, this side-effect of the now-applicable JSL legislation seems to be one of a few unintended consequences missed by the government.

How might contractors lose employment rights in the post-JSL era?

Another concern with JSL is that contractors may face the potential loss of employment rights if they are not ‘TUPE'd,’ i.e. transferred under the Transfer of Undertakings (Protection of Employment) Regulations, when moving to a new umbrella company.

With many social media conversations indicating that this transfer is simply not happening, contractors ‘on the ground’ are actually being told to move umbrella company or, if not, move on from their assignment, with agencies arguing that using a differing brolly is “too much risk” for their staffing businesses.

What does TUPE ensure when correctly used?

Correctly used, TUPE ensures existing employment rights and benefits are protected. These rights include the essentials, like holiday pay, sick leave, pension contributions, and protection against unfair dismissal.

However, if a contractor is not ‘TUPE'd’ to the new umbrella company, they risk losing key employment protections. In some cases, contractors might find themselves in a situation where their terms of employment are less favourable, or even lacking entirely, compared to when they were with their previous umbrella company.

To comply with JSL, what must umbrella companies actually do?

To comply with the now-enforceable JSL legislation, umbrella companies must be proactive in ensuring that they adhere to tax regulations, so that they can provide the sought-after added level of security to agencies and contractors.

Historically, for umbrella companies, accreditations from a recognised body have long helped signal compliance. And pay slip checking software to provide a snapshot of even the very last payments to HMRC should, equally, be good enough to demonstrate compliance.

But neither seems to be good enough under JSL!

Does the ‘Chapter 11’ JSL legislation contain a statutory defence?

As JSL is a “strict liability” regime, the recruitment agency (or other “relevant party”) now has no defence if the agency contracts with an umbrella company whose tax payments to HMRC fall short.

This absence of a statutory defence in the JSL legislation, which can now be found at a new “Chapter 11” in Part 2 of the Income Tax Earnings and Pensions Act 2003 (ITEPA) might explain other actions we’re seeing.  

What 3 things are agencies looking for in umbrellas, other than compliance assurances?

In fact, at the same time as contractors are being pushed by agencies to new employers (i.e. umbrella companies) that they often don’t want to be employed by, some agencies are looking for more than just compliance.

Instead, some recruiters are seeking out:

1. Umbrella companies with large balance sheets
2. Umbrellas with appealing credit terms, hoping such terms will protect the financial aspect of the engagement (which, in my view, is a dangerous strategy because generally speaking, HMRC liabilities are used to fund these appealing terms)
3. The best rebates from umbrellas, with the audacity to let it be known that this would be one of the key deciders in the PSL application process (which is sparking rather unedifying bidding wars).

How much is Joint and Several Liability set to raise for the Treasury?

Effective from yesterday, HMRC’s Joint & Several Liability legislation marks a significant change in the umbrella company contracting landscape.

The sheer scale of that significance is partly evidenced by JSL being set to raise £2.8billion by 2031 (according to the OBR).

With JSL finally here, what’s next for contractors’ recruitment agencies?

With JSL now in force, contractors’ recruitment agencies must be more diligent than ever in selecting an umbrella company to partner with, as part of trying to ensure umbrella companies’ tax obligations to HMRC are met.

However, this need to minimise risk is leading agencies to restrict the umbrella companies that they will work with, potentially adversely affecting choice, rights, and assignments for contractors.

How might JSL reshape the umbrella company market as a whole?

Contractors should brace themselves further, as the JSL legislation may give rise to a small, finite number of larger umbrella companies, which will largely be left to compete with each other. The result could be a near monopolisation of the umbrella market by a few big brolly names, marching to the beat of agency restrictions.

It is fitting, perhaps, that the new “Fair Work Agency” will come into effect today, April 7th 2026.

Why are bigger brollies leaning into Joint and Several Liability?

At the same time, it should be kept in mind that although JSL puts HMRC in a stronger position to chase unpaid taxes while theoretically safeguarding contractors from non-compliant tax arrangements, the April 6th framework also places more responsibility on agencies to ensure that they are not adversely affected by the financial mismanagement of an umbrella company.

And with the JSL rules now applicable, this greater onus on agencies is leading to a reliance by them on larger businesses, as these bigger operators are most often perceived as able to provide the sought-after financial confidence and reassurance.

The takeaway

We believe the effects of the now in-force Joint & Several Liability legislation for the umbrella company market will be potentially much more widespread than the government outlined in its November 2025 JSL impact assessment. Therefore, as the JSL legislation begins its long bedding-in process, we must hope that challenges which will stem from this historic, arguably necessary legislative answer to non-compliant umbrella companies will be counterbalanced by the confidence in compliant umbrella companies starting to grow again. Only time will tell.