What our contractor umbrella company makes of Joint & Several Liability

The contractor industry has been reacting to the informal announcement by the government that it intends to include Joint and Several Liability (JSL) in the April 2026 umbrella company tax legislation, writes Alex Fraser, chief operating officer at Compass Contracting & Employment.”

Is Joint & Several Liability a sure thing?

Most umbrella companies and recruitment agencies affected by the news that JSL will be introduced by HMRC received the information second-hand, from industry representatives who were consulting with tax officials on umbrella company regulation and tax compliance.

Without the detail of the proposed changes from HMRC, it is not possible to identify all the potential ramifications.

But we can speculate on what is reasonable to expect.

What is Joint and Several Liability?

In general terms, Joint and Several Liability (JSL) refers to when two or more parties are liable for the same obligation, and each party can be held responsible for the full amount of the liability, not just their individual share.  

Importantly, a claimant (e.g. HMRC) can pursue one, some, or all of the liable parties for the entire amount of the claim.

Applying this model to the draft umbrella company tax legislation, where there is no agency present in the supply chain, the liability would be shared in the same way between the end-client and the umbrella company. 

One business, but not a single function

Let’s take Compass as an example.

We are primarily an umbrella provider, but we also:

-       employ temporary workers under a simple PAYE model (PEO)

-       engage with self-employed construction workers under the CIS scheme, and  

-       provide an outsource payroll facility, whereby we manage deductions and payments but aren’t the employer.

Our JSL impact assessment

Based on what little we know about the plans, we would expect the introduction of JSL to potentially have some short-term negative impacts on our business in the form of additional compliance reporting.

But in the long run, JSL should prove to be very beneficial for our business and other compliant umbrella providers.

Why is Joint & Several Liability (JSL) good news?

Under the envisioned JSL umbrella company tax legislation, recruitment agencies that know or suspect their umbrella providers are operating tax avoidance schemes will recognise that if held liable, their entire business could be wiped out.

These agencies would then only refer candidates to umbrella companies which could prove their compliance.

Where the compliant cannot currently compete…

Our business has a proven track record of providing a professional and efficient service to partner agencies and their contract workers -- but we can’t compete with umbrellas that are willing to offer worker take-home pay with minuscule tax deducted.  

The hope, then, is that JSL will level the commercial ‘playing field’.

Our umbrella company's life lessons be like…

As a contractor umbrella company which has been serving contractors since 2019, our strategic focus on compliance has led us to recognise that the best way for agencies to take ownership of their supply chain is for them to become true partners in the umbrella’s business.

Full transparency must be an operational norm, not a catchy phrase used in pitches.

For example, our agency partners have 24-7, full access to all payroll records, bank accounts and HMRC tax records. It turns out that this model will now come into its own, in a world where agencies are looking for ways to ensure their survival under JSL.

What are JSL’s disadvantages for umbrella companies?

Negative outcomes of JSL for compliant umbrellas may include some bigger agencies deciding to take payroll in-house.

These agencies may already have a mixed book and are more likely to have the capability to absorb more payroll processing.

Furthermore, Approved/Preferred Supplier Lists may shrink in size, to concentrate more in-depth compliance audits on just a few providers.

How will JSL affect contractors?

This may disproportionately benefit larger umbrellas, and lead to less choice for contractors who could be forced to work through various umbrellas rather than their preferred supplier.

For contractors, this could be particularly frustrating where they have set up private pension payments.

Of course, the contractors who have become used to artificially inflated take-home pay are likely to suffer the most immediately under the new rules!

What about direct-to-client supply contracts under JSL? Good question…

At the time of writing, we have relatively few supply contracts directly with end-clients.

And it is these arrangements where the impact of JSL is the most difficult to predict.

Our relationship with an end-client is derived from a situation where they wish to engage a highly skilled contractor, with specialist skills, who can dictate their choice of umbrella provider (based on previous good experience, and for consistency of private pension payments).

Under JSL, direct-to-client relationships that umbrellas have may be put under threat, as clients may want to involve an agency, even at an unnecessary extra cost, to remove their liability under JSL.

Final thought: Not long to wait now

With these direct-to-client umbrella company contracts, it’s very much a case of watch this space. But of course, a more precise grasp on the effects will be known once the JSL detail emerges, reportedly in just a few weeks or so.