In the absence of any reference to the umbrella company tax reforms in Budget 2025, HMRC published a new, nine-chapter policy paper on November 26th.
The upshot of the paper — Umbrella company market: changes to Income Tax rules to tackle non-compliance — is that the Joint and Several Liability legislation is definitely going ahead, and will apply from April 6th 2026, write Chris Bloor, director of compliance at Parasol, and Anthony Stevens, a director at Sapphire.
JSL: Draft legislation is likely to mirror the final legislation
In line with the HMRC policy paper's contents being based largely on already issued government statements about 'JSL' (Joint and Several Liability), we are not expecting a huge shift in the detail of the framework, even when the final version of Finance Bill 2025-26 is published soon.
Helpfully, though, it was confirmed that further legislation will be introduced to amend section 4A of SSCBA 1992 to provide HM Treasury with the power to make regulations imposing an equivalent joint and several liability for NICs purposes.
Final warning to the inert before JSL rules apply? Probably…
Or at least, it's being welcomed by most of the supply chain that is preparing. In a Parasol webinar yesterday, one of the guest speakers alluded to the fact that there are still a number of agencies that have not started to prepare for JSL. To be safe, these inert agencies should take publication of this new HMRC policy paper as the final warning that joint and several liability measures are going ahead from April 6th 2026.
Not for the first time, HMRC is nodding to umbrella accreditation bodies
Further welcome if you're an accreditation body, or even if you have an accreditation, is that the HMRC policy paper recognises the efforts of the accreditation bodies.
While the paper doesn't name them, the allusion to the FCSA, SafeRec and Professional Passport isn't the first welcome acknowledgement that they've had from HMRC.
Then, like now, HMRC is keen to highlight that the JSL legislation is being introduced from April 2026 as an attempt to remove only the non-compliant models and operators.
Joint and Several Liability will hopefully level the playing field
By contrast, for those umbrella companies that have been through the accreditation bodies' yearly assessments and more latterly, weekly checks, the anticipated levelling of the playing field that JSL is designed to bring will be seen as vindication for their efforts.
In the paper, HMRC states: "Many umbrella companies operate diligently, supporting their employees and providing convenience and administrative benefits for agencies."
Why it will be 'Business As Usual' for compliant umbrellas and agencies
Therefore, for compliant contractor umbrella companies, it looks set to be 'business as usual' from 06.04.26.
And the same is true for contractor recruitment agencies that work with such compliant brollies.
When JSL liability to HMRC is theoretical
In particular, those agencies that have prioritised compliance and refused to work with contrived, soon-to-be-called 'purported umbrella companies,' or "purported" payroll providers, should now be able to sleep a little sounder.
At the very least, agencies working with trusted, accredited umbrella partners who can demonstrate the following four should now be more at ease that their potential liability under the JSL legislation to HMRC is theoretical, and shouldn't therefore become a reality.
Four assurances or checks for agencies ahead of JSL from April 2026
- The umbrella is independently assessed or has audited processes and operational standards (N.B. the HMRC policy paper states "The government recognises the efforts of the membership and accreditation bodies to drive up standards in the recruitment sector.").
- Proof that PAYE and NICs have been calculated correctly (using real-time, independent payslip checker solutions).
- Proof that PAYE and NICS have been paid in full and on time.
- A strong financial position/balance sheet.
We believe that agencies should be demanding this level of assurance — the four above — as a minimum from their umbrella company partners. Put another way, umbrella companies need to be prepared to fulfil such requests to satisfy their customers that any liabilities have been/can be met.
Elsewhere, the HMRC policy paper outlines that some businesses may choose to administer their own payroll.
HMRC says agencies will be liable even if the payroll's internal
But the Revenue goes on to state that "the [JSL] measure places liability on agencies for any PAYE shortfall, regardless of whether they operate payroll themselves or use an umbrella company."
This is an important point to note. And it is accentuated further by HMRC's view (stated in the policy paper) that "agencies are expected to take greater care in selecting and monitoring the umbrella companies they work with."
Reality checks, and the bottom line
As an addition to the above, we believe that, if a recruitment business (or end-client where relevant) feels that its only option is to pay the worker and pay the PAYE directly to HMRC, it is highly likely that it has been working with the wrong umbrella companies in the first place!
The bottom line is that recruitment agencies and Managed Service Providers both need to be wary — they have a potential liability from April 6th 2026, which doesn't exist today, so evaluating their supply chain is a must.
HMRC says JSL is aimed at increasing due diligence
It's easy for agencies to potentially feel like they're being picked on here. But the government's intention was never to shift employment and tax responsibilities to agencies.
The HMRC policy paper states: "This measure is intended to encourage increased due diligence among businesses that choose to use umbrella companies to engage workers."
To really rid that 'picked on' feeling if you're a recruiter, remind yourself that HMRC also points out that many agencies already "undertake significant due diligence on their suppliers."
While we eagerly await the new Chapter 11 in Part 2 of ITEPA 2003 to see if any tweaks have been made to the draft JSL legislation, there's another inescapable intention.
JSL will raise more than the dividend tax increases in its first two years
Not only will compliant umbrella companies play an even bigger role in supporting contractors and agencies 'on the ground' from April 2026, but they'll be collecting much more revenue for the Exchequer than today — £2.8billion by 2031, according to the OBR.
This £2.8bn yield for HMRC from the JSL rules appears to be absent from the OBR's Economic and Fiscal Outlook 2025. But in a sign of the sheer scale of the measure, JSL will raise £870million by 2027 (according to the HMRC policy paper), whereas the April 2026 increase in dividend tax rates will, by comparison, yield only an extra £280m by 2027.
Final thought — JSL is a seismic shift
This incoming HMRC windfall from Joint & Several Liability legislation (covering tax years with a higher certainty of forecasted yield simply due to them being sooner than the subsequent four years) should give any agency, umbrella, end-client or contractor burying their hand in the sand over JSL a wake-up call about just how seismic this shift is potentially going to be.
