If it’s JSL liability, it’s Managed Service Providers (MSPs) too, potentially

It was good before ‘L-Day’ to hear what a fellow umbrella company made of Joint and Several Liability legislation.

But now that the dust is starting to settle on the draft Chapter 11 rules, it’s worth taking a more definitive look at this framework, whether you’re a contractor, client, agency, or even an MSP (Managed Service Provider), writes John Bounds, a director at Rocket Paye.

Joint & Several Liability (JSL) brings certainty, clarity, and formality

After all, we now have clarity and certainty in the shape of the actual wording of these new rules for umbrella companies’ clients.

And that means we have the statutory definition of what an “umbrella company” is under the JSL legislation of April 2026, ahead of umbrellas being formally regulated by the Employment Agency Standards Inspectorate (soon to be the Fair Work Agency).

JSL: What is it? And how is the umbrella contractor supply chain seeing JSL?

Since the draft JSL rules were published on July 21st 2025, we have found that more and more supply chain parties are appreciating that JSL marks a fundamental shift in how tax compliance will be enforced in the temporary labour market.

And rightly so, because what Finance Bill 2025-26 contains is not a refinement of existing rules -- it is a structural overhaul designed to push liability back up the supply chain.

How? Well, the new legislation introduces joint and several liability for unpaid PAYE and National Insurance Contributions in umbrella company arrangements. So that means recruitment agencies, end-clients, and less visibly on everyone’s radar -- managed service providers (MSPs) -- face direct financial consequences if umbrella companies in their supply chains fail to meet PAYE and NIC obligations.

Managed Service Providers (MSPs) are on the hook

The draft Finance Bill JSL rules not explicitly naming Managed Service Providers, and the accompanying HMRC policy paper also not mentioning “MSPs,” might explain the overlooking (comparatively) of these providers being on the hook from April, too.

Potentially unhelpfully, in a section of the policy paper entitled “Who is likely to be affected?,” HMRC simply states: “Recruitment agencies that use umbrella companies to engage the workers they supply.

“End client organisations that use workers who are engaged by umbrella companies where there is no agency in the labour supply chain.

“Umbrella companies that process pay for workers on behalf of agencies and end clients.”

With Chapter 11 rules, what’s relevant to MSPs is the ‘relevant party’

The key thing when trying to understand how it is that MSPs will be liable as well is that, in simple terms, if a worker provides services to a client through an umbrella company -- and the umbrella fails to meet its PAYE or NIC obligations -- HMRC will have the power to recover the deemed unpaid tax from any “relevant party” in the supply chain.

With JSL legislation taking effect from April 2026, agencies, clients – but also MSPs -- have just eight months to prepare.

Don’t just take it from us.

MSPs under JSL legislation: what are legal experts saying?

Law firm Osborne Clarke says: “Managed service providers (MSPs) will be liable where the services of an umbrella worker who has been engaged via a second-tier supplier is ‘on-supplied’ by the MSP to an end client.”

Legal advisory The Law Place states: “A key concern for MSPs is that the umbrella company arrangements conditions in section 61Y(4)(c)(i) capture MSPs (the upper-recruiter) while excluding smaller employment businesses in the supply chain.

“Therefore, MSPs are at risk of JSL if an employment business in the supply chain uses an umbrella company to pay a worker unbeknownst to an MSP, even if a contractual condition prohibits the use of an umbrella company.”

Recruitment agency Hays is warning on Managed Service Providers/Partners, too

With potential contractual issues on its mind, and maybe more, recruitment giant Hays says of MSPs:

“Going forward…employers should communicate with contractors about how they’re engaged, and ensure open lines of conversation with any managed service programme (MSP) providers -- ideally working with a trusted MSP partner.”

Ignorance, statutory excuse and culpability

Interestingly, or worryingly given that we sense not all MSPs are on the front foot with JSL, there is no defence for ignorance, and there will be no statutory excuse.

Put another way, culpability is irrelevant. There will be no requirement for HMRC to prove negligence, intent, or knowledge of non-compliance.

As this JSL liability overview from law firm Egos indicates, liability is going to attach automatically -- to those, like MSPs, who fall within the defined “relevant party,” regardless of whether audits were conducted or third-party accreditations relied on by that “relevant party.”

Where HMRC comes in from April 2026

In practice, HMRC will be issuing a Regulation 80 determination to recover unpaid tax. Once assessed, the debt is treated as if it belonged to the party to whom HMRC issued the determination.

To a casual reader, it might sound like everyone in the labour supply chain is suddenly going to be at the sharp end of the taxman’s clutches!

But JSL, if you’re compliant and more importantly, if your umbrella is compliant, is a positive thing.

Keep in mind the reason that JSL is incoming from April 2026. According to HMRC’s policy paper, the legislation is intended to close tax loopholes that allow non-compliant umbrellas to operate unchecked.

HMRC says JSL will protect contractors, bonfide brollies

The Revenue’s intent is to prevent contractors from facing unexpected tax bills when umbrellas fail to pay PAYE and NI contributions.

HMRC also wants to level the playing field for compliant operators who are undercut by fraudulent schemes.

Top 4 Joint and Several Liability preparations

Whether you identify as a ‘client,’ ‘agency’ or ‘MSP,’ we’ve got four recommendations, and a bunch of questions.

1. Check your labour supply chains thoroughly and ask questions.

• Do you know who is paying your candidates or contractors?
• Are there any other entities within the supply chain?
• Are you paying the company named on the payslips?

2. Review every umbrella relationship you have for ownership and compliance history.

• Who owns the umbrella company you are on-chain with?
• Have they changed their company name or bank accounts, and if so, why?
• Are they fully UK-based? Or are you paying into a ‘UK shop window’ and then the funds go offshore, including the Isle of Man?

3. Establish live compliance monitoring.

As far as we can tell, JSL means it’s pretty much ‘out’ with retrospective checks and ‘in’ with independent real-time auditing. Our assessment is that real-time checking is the only way to ensure umbrellas like us are complying.

4. Know your details (and theirs)

Whatever your mechanism of choice, we advocate you having every calculation, payslip and payment checked, and you knowing that the umbrella’s RTI reports match the calculations.

Oh, and you must know that those RTI values match the umbrella companies' payments to HMRC!

You can see why independent real-time auditing comes into its own with JSL.

TLDR: If it’s JSL liability, it’s Managed Service Providers (MSPs), too, potentially

For once, contractors might feel out of the crosshairs. Because if you’re an ‘MSP,’ ‘agency’ or ‘client,’ this JSL legislation at the heart of Finance Bill 2025-26 is a loud and clear message from HMRC that if you are involved in the supply of labour, you’re also accountable for how that labour is taxed.

Compliance is no longer optional -- and plausible deniability no longer exists as you cannot provide a statutory excuse. If your organisation uses umbrella workers, now is the time to act, because once the first failure happens, HMRC won’t look at who tried. It will look at who’s left to pay -- and that includes MSPs.

And finally, get unspun, even if the spinning may have only just begun…

If you’re an MSP reading this, and your potential liability from April 2026 comes as news to you, then we’re a bit sympathetic. There’s been a lot of talk, rhetoric and ‘agenda’ since JSL came out -- largely from the usual suspects, and we expect the ‘spin’ to continue.

Reach out to me if you’d like a no-nonsense conversation or even a rethink of your current umbrella/payroll provider arrangements, because, bar any last-minute revisions, what you must have in place as an MSP or other "relevant party" is now largely set in stone.