How umbrella company contractors will be hit by Joint & Several Liability

With HMRC now signalling its intended direction of Joint & Several Liability in new legislation for the labour supply chain, albeit with final details still pending, it is crucial that contractors begin to understand and prepare for the significant changes from April 2026. 

Exclusively for ContractorUK, Crawford Temple, CEO of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance, shares his thoughts on how the JSL changes might impact umbrella company contractors.

Agency control over umbrellas? You ain’t seen nothing yet…

Over recent years, we’ve seen agencies applying more control over which umbrella companies contractors can engage with.

However, those controls are likely to pale in comparison to what is coming.

The proposed legislative changes, set to take effect from April 6th 2026, will place full liability for unpaid PAYE tax directly on the agency in cases where non-compliant umbrella companies are involved.

Crucially, agencies will have “no statutory excuse” to shift or mitigate that liability. As a result, we expect agencies to respond swiftly and decisively to protect themselves from financial exposure.

Goodbye to freedom: seismic shift in contractors’ umbrella company choice

From a contractor’s standpoint, this will create a seismic shift in the way engagements are managed.

Many recruitment agencies are likely to develop formal, tightly controlled partnerships with a small number of vetted and accredited umbrella providers.

For the contractor, this means significantly reduced freedom to choose an umbrella company -- a freedom that many have valued, particularly for reasons of continuity of employment and workplace pension participation.

What's the position of contractors working via one recruitment agency?

Contractors working via a single recruitment agency may find themselves forced to change umbrella providers to align with that agency’s approved list of umbrellas. While this may seem frustrating, especially for those contractors who have built up benefits with their current umbrella, it is a logical step from the agency’s perspective.

Their financial liability is at stake, and they will naturally want to work only with providers they trust to be fully compliant with HMRC.

What’s the position from April 2026 for multi-assignment contractors?

The challenges will be more complex for those contractors juggling multiple assignments across different recruitment agencies.

Each agency may insist on using a specific umbrella company, resulting in the contractor having to operate each engagement through separate payrolls. This can trigger a number of practical and financial issues, most notably around tax coding.

Lower take-home pay potential looms

When a contractor is employed by multiple umbrellas concurrently, their personal tax allowance -- the amount of income on which they pay no tax -- can only be applied to one employment.

The other assignments are automatically taxed using a BR (Basic Rate) code, meaning that all income from those roles is taxed at 20%, with no allowance applied. If the primary employment doesn’t make full use of the personal allowance, this set-up could lead to lower take-home pay in the short term.

While this may eventually balance out when a tax return is filed at year-end, it adds a layer of financial complexity and uncertainty for the contractor.

A cleaned-up umbrella market from April? Potentially…

More broadly, this increased restriction on umbrella company usage should, in theory, reduce the level of tax avoidance and non-compliance in the market.

For some time now, there has been a significant disparity in net pay between contractors using compliant umbrella providers and those engaging with tax avoidance schemes promising inflated take-home pay. While it has always been the case that such avoidance schemes are risky -- and potentially unlawful -- the appeal of higher earnings has led many to turn a blind eye to the consequences.

Watch for contractor jobs agencies de-listing avoidance schemes 

Now, with agencies under pressure to clean up their supply chains within the next months or face direct tax liabilities themselves, these schemes are likely to disappear from approved lists.

For contractors currently using such arrangements, the financial impact could be severe.

Scheme users face a 30% take-home pay dent

These individuals could see take-home pay fall by as much as 30% in some cases, as these individuals get brought back into HMRC-compliance. That will be a painful adjustment, but it is also a necessary step toward restoring integrity in the supply chain.

Out of all the ‘umbrella company’ contractors who stand to be affected by the umbrella company tax compliance legislation imposing JSL, it is these contractors using schemes (sometimes the shady part of a bonafide brolly’s offering) who must start planning now.

No room for 11th-hour planning, especially if you're a scheme user…

Leaving the transition to the last-minute could result in a sudden and severe drop in income. That’s a cliff-edge that many will struggle to manage.

Early engagement with agencies and a clear understanding of which umbrella providers are likely to be acceptable under the new regime will be key to a smooth transition.

Details from HMRC and draft legislation are expected in mid-July

Joint & Several Liability will impact contractors in direct and far-reaching ways

In conclusion, while the proposed legislative changes are aimed squarely at tackling tax avoidance and improving compliance, they will have direct and far-reaching implications for contractors -- umbrella company employees. Reduced choice, multiple payrolls, and changes in take-home pay are just some of the impacts on the horizon that the ‘joint and several liability’ model in the legislation will impose.

As we move toward April 6th 2026, proactive planning and communication will be critical for contractors looking to navigate the new contracting landscape effectively.