HMT signals ‘joint and several liability’ for umbrella company tax compliance

His Majesty's Treasury has signalled a model of Joint and Several Liability (JSL) to achieve contractor umbrella company tax compliance from April 6th 2026.

Under JSL, the recruitment agency supplying the contractor to the end-hirer would be liable to HMRC for any PAYE and NICs not paid by the umbrella company.

If no agency is in the chain, the end-hirer would be responsible for PAYE/NICs if they contract with a non-compliant umbrella and there is a shortfall in tax.

‘Liability for umbrella company contractors’ end-clients not impossible’

If both agencies and end-hirers are present, it’s unlikely (“not impossible”) end-hirers will be liable, says ReLegal Consulting, which tabled the model to HMT.

The law firm cautions that JSL is only the “direction of travel” that the Treasury is taking, meaning it is yet to be “signed off” by the Exchequer Secretary.

But if JSL becomes draft law on mid-July’s ‘L-Day’ (Legislation Day), it would enable the Employer Reference Number to stay with the umbrella company.

‘Joint and Several liability is better than requiring agency to operate PAYE’

BDO is pleased. The firm’s John Chaplin says: “This is much better news than requiring an agency to operate PAYE on the earnings of an umbrella employee.

“It’ll still require the agency to carry out due diligence on the umbrella paying its staff. And there’ll be a need for the due diligence to [ideally be] in real-time.

“But once the recruitment agency is happy that PAYE/NIC has been paid over [to HMRC], the risk should diminish.”

‘Absolute liability, and no statutory excuse, for recruiters’

Yet under the JSL model that the Treasury is “leaning towards” (as Clarity Umbrella puts it), there will be “absolute liability,” and “no statutory excuse.”

Re Legal Consulting’s Rebecca Seeley Harris explains: “HMRC will be able to pursue the agency for the debt as they will have the primary liability. 

“So, as long as the umbrella company is compliant, they can continue to be liable for the tax, and it is business-as-usual.

“[However] there will be no statutory excuse or defence [for the agency]…such as that the organisation has taken ‘reasonable care’.”

‘Contractor recruitment agencies to bear the brunt from April 2026’

Therefore, in practical and tax terms, if their umbrella company isn’t compliant, recruiters will “bear the brunt,” cautioned Seeley Harris, ReLegal’s founder.

Legal advisory Osborne Clarke took to LinkedIn on Friday, following the Treasury’s signal on Thursday that it will adopt the JSL model from April 2026.

“Agencies will be liable for the full amount any umbrella doesn’t pay, with no defence of ‘using reasonable endeavours to pick a good umbrella.

“Our take on this is that a lot more detail is required to understand the full impact of any JSL between the umbrella company and the agency -- or client -- and interaction with existing tax legislation.”

‘Confusion over whether umbrella company tax, agency worker or IR35 rules apply’

Osborne Clarke’s Frances Lewis added: “The [draft] legislation [in mid-July] will have to very clearly set out when…[it] does and does not apply to avoid confusion about which tax regime will apply to any given situation.

“A key question for all will be whether any particular situation triggers liability under this new umbrella tax regime, the agency worker regime, or IR35.

“Clearly, some regimes will be more attractive than others depending on whether you are HMRC or not, and depending on where you sit in the contractual chain.”

‘Umbrella companies relieved at retaining ERN’

Head of the legal advisory’s contingent workforce unit, Lewis says she assumes joint and several liability for "agencies" will extend to not just potentially end-hirers (where an agency isn’t involved), but to Managed Service Providers (MSPs) too.

“Umbrella companies will no doubt be relieved about continuing to hold the Employer Reference Number (ERN). 

“However, the prospect of joint and several liability for ‘agencies’ …will drive a need for increased scrutiny of umbrella company contractor and employer-of-record payments.

“And larger, well-established umbrella companies may be better placed to demonstrate compliance than new market entrants,” Lewis said.

‘Recruitment agency due diligence – against a backdrop of Treasury naivety’

Lucy Smith of Clarity Umbrella (crowned ‘Best Umbrella Company’ under 500 clients at the Contracting Awards 2022-2024) says due diligence will come into its own for agencies, regardless of their size.

“Now more than ever, ‘due diligence’ is going to be key to any agency, so you know who you are working with, and the risk can be removed.

“I still believe there is an element of naivety in [the Treasury’s latest position], as they do not believe the changes will impact those ‘compliant’ companies."

‘Lot more water yet to flow under the umbrella company bridge’

Further reflecting on Friday to her agency and umbrella ‘followers’, Smith added online: “But at least yesterday's announcement goes some way to making compliant brollies a viable option, even if the update doesn't provide any definitive answers.

“[For such answers], I guess we shall [now have to wait and] see -- once those finer details are published.”

Kevin Barrow, partner at Osborne Clarke, will also be keeping a keen eye out on next month’s L-Day, in wake of “a lot more water [yet] to flow under this bridge.”

“Unless the new legislation is very carefully drafted we imagine that various entities up and down staffing supply chains will look to reframe their commercial models to make sure they are subject to the best or least onerous tax regime available.

“Ensuring they have statutory defences and or making sure they can argue that, in fact, someone else is liable [will likely be the focus].”

‘Anticipate HMRC to treat Income Tax (Earnings and Pensions) Act 2003 like a sweet shop’

Alluding to IR35, agency rules, and the umbrella company tax compliance legislation (with joint and several liability baked in), Barrow continued:

“We can see a situation where HMRC starts treating [the] ITEPA [framework of 2003] like a sweet shop -- it will see some unpaid tax and look at the supply chain and decide which entity it would most like to assess in that chain.

“And it could then pick the tax regime which allows it to attack that entity.

“[While] I am not sure the courts will respond very favourably to that…in the meantime, we recommend all in the staffing supply chain look hard at their commercial models.

“Start considering whether…[you have] options which might ensure [you] are in the most favourable tax regime. [In short], start working out which sweetie jar you want to be in!”

‘Model of holding recruiters liable is straightforward but powerful’

SafeRec is among those gearing up for the work ahead, not that effort hasn’t already been invested in getting HMT to prime JSL as the way forward.

“It’s been a long eight months,” the firm’s managing director Sebastien Sauca acknowledged on Friday.

“The early focus was all about reframing the issue. It was never just about whether gross pay reached the umbrella company — the real concern was which ERN was being used.

“That insight formed the basis of a report we drafted in December 2024, proposing a straightforward but powerful model -- hold recruitment agencies liable.

“And while we’re not across the line yet  -- it feels like a real leap in the right direction.”

‘Devil will be in the detail’

BDO’s Mr Chaplin echoed the optimistic feeling of a corner being turned -- even for insurers, and even if JSL is still awaiting final approval by His Majesty's Treasury (HMT).

“Any insurance-backed arrangements will still have a role to play [from April 6th 2026].

“But maybe now they can be simpler, if the risk is only for the period between the workers being paid and the agency satisfying itself that PAYE/NIC has been paid correctly?]

“The devil will be in the detail…[but ] overall [this signal from HMT] is good news for compliant Brollies. More admin? Yes. An end to brollies? No.”

‘Significant shift in how tax risk is managed across the labour supply chain’

Mark Beal-Preston of Talent Journey said: “Where an umbrella company fails to remit PAYE/NIC correctly, liability will rest with the agency or end-client.

“This marks a significant shift in how tax risk is managed across the labour supply chain.”

‘A potential end to disclaiming responsibility for umbrella company tax non-compliance’

Talent Journey’s chief commercial officer, Beal-Preston added:  “This direction is broadly welcomed by industry stakeholders as a proportionate response to non-compliance, and is intended to [achieve three things].

“Strengthen supply chain accountability; deter the use of non-compliant umbrella model, [and third], foster a more transparent and compliant contracting environment.

“While the final legislative detail is still pending, the direction of travel is now clear -- agencies and clients will no longer be able to disclaim responsibility for umbrella company tax non-compliance.”