Q1: How does HMRC define Joint and Several Liability (JSL) in the context of umbrella companies, and how should it be understood by first-timer contractors?

HMRC Under the new JSL rules, recruitment agencies and/or end clients are jointly liable to pay the sums that umbrella companies, as employers, have to pay to HMRC under PAYE.

This includes the income tax, Student Loan repayments and employee National Insurance contributions (NICs) that umbrella companies must withhold from workers' pay and remit to HMRC, as well as their own employer NICs.

Where parties are jointly and severally liable, this means that each is responsible for a debt until it is paid. This means that when a liability to pay these sums arises — for example, when an umbrella company runs its payroll — it will arise for the umbrella company and the “relevant party” or parties on a joint and several basis.

The liability will be settled when it is paid by the umbrella company and, if it is not paid on time, will be recoverable by HMRC from any party to the liability.

None of this changes the fundamental principle that individuals are ultimately responsible for their own tax liabilities.

Q2: What were the primary drivers behind the introduction of JSL, and what risks is it designed to address?

HMRC Many umbrella companies operate diligently, supporting their employees and providing convenience and administrative benefits for agencies. However, too many are used to facilitate non-compliance, including tax avoidance and tax fraud. This incurs significant losses for the Exchequer and can leave workers, e.g., umbrella company contractors, with unexpected tax bills.

Q3: What are the main aims of the Joint & Several Liability rules for the umbrella company market?

HMRC The new JSL rules have three main objectives:

1. To close the tax gap by protecting the Exchequer from significant losses caused by the fraudulent activities of some umbrella companies. This will also reduce the large sums of money going to organised criminal gangs involved in labour supply chain fraud.
2. To help prevent workers facing large, unexpected bills for income tax and NICs that have not been paid to HMRC by non-compliant umbrella companies.
3. To ensure that the temporary labour market operates on a level playing field by preventing fraudulent operators undercutting compliant businesses that operate within the rules.

Recruitment agencies can decide which businesses enter their labour supply chains, and they have the power to prevent illegitimate operators from entering the market.

The government believes that making those who can control labour supply chains legally responsible for ensuring that PAYE is properly accounted for will improve compliance in the umbrella company market.

Q4: How will liability be applied where an umbrella company becomes insolvent and is unable to meet PAYE/NIC obligations?

HMRC Where the JSL rules apply, relevant parties will be jointly and severally liable from the point that the liability arises. This means that where an umbrella company becomes insolvent, having not paid its liabilities, relevant parties will continue to be jointly and severally liable.

HMRC will be able to pursue recovery of unpaid liabilities from relevant parties.

Q5: What due diligence steps does HMRC expect agencies, MSPs, and end-clients to undertake to manage JSL risk?

HMRC It is important that end clients and agencies identify the entities in their labour supply chain, understand how workers are being engaged and paid, and assess and reduce any risks of non-compliance.

HMRC has published detailed guidance for businesses setting out how to undertake and record the due diligence checks needed to ensure a compliant supply chain.

Further HMRC guidance, entitled “Help With Labour Supply Chain Assurance,” is also available.

Q6: Given the absence of a statutory defence in the JSL legislation, how does HMRC justify the role and value of ‘due diligence’ and compliance frameworks?

HMRC While using workers employed through umbrella companies is ultimately a commercial decision for engagers, the policy framework reflects the fact that those closest to the supply chain are best placed to influence who operates within it.

Where an umbrella company is non-compliant, the agency or end client remains jointly and severally liable, which underlines the importance of taking reasonable steps to understand who they are contracting with.

Due diligence and compliance frameworks therefore play a critical preventative role.

HMRC has provided guidance which details how to undertake and record due diligence checks and will help engagers to recognise the behaviours of a non-compliant umbrella company. The guidance, “Responsibilities for employment businesses working with umbrella companies,” is available here.

Used properly, these checks can significantly reduce the risk of fraudulent operators entering the supply chain — protecting businesses, compliant umbrella companies and workers alike.

Q7: Is it correct to assert that ‘no accreditation, no certification and no payslip checking technology provides a statutory defence under JSL’?

HMRC Where the JSL legislation applies, the joint and several liability will arise when a liability to pay HMRC arises under PAYE.

For example, when an umbrella company runs its payroll.

There is no statutory defence against the joint and several liability arising.

Q8: What protections exist for workers — contractors — who are paid through non-compliant umbrella companies?

HMRC Protection of workers against non-compliant umbrella companies is one of the key drivers for this policy of Joint & Several Liability.

Unscrupulous actors in the temporary labour supply chain have, for too long, put workers at risk of facing unexpected tax bills because the umbrella company has failed to meet their obligations.

However, the fundamental principle that workers are ultimately responsible for their own tax liabilities remains, so workers should continue to check their payslips and be vigilant about payment arrangements that they are offered.

HMRC offers guidance and education to support workers employed through umbrella companies, including a pay tool calculator, and information about risks to look out for through our Don't Get Caught Out campaign.

This guidance also explains how HMRC will support workers who want to leave these arrangements and settle their tax affairs, which may include instalment arrangements. HMRC has also published more general guidance about working through an umbrella company.

Q9: Will HMRC adopt a phased or light-touch approach to enforcement during the initial period following implementation, how long for specifically, and what will JSL penalties look like?

HMRC The new JSL rules apply in relation to payments made on or after 6 April 2026. There will be no light-touch or phased approach to enforcement activity. We would encourage businesses affected by the rules to take action at the earliest opportunity to secure their supply chains.

The new JSL rules do not make any changes to existing penalties regimes and do not introduce any new penalties.

Q10: What can umbrella company contractors do if they have concerns or queries about JSL?

HMRC In the first instance, we would suggest consulting HMRC's comprehensive guidance covering working through an umbrella company and the new rules. Where workers have information about an umbrella company that is not compliant with its tax obligations, they can report it to HMRC.

Where workers are concerned about their treatment by their umbrella company employer, they can contact the Advisory, Conciliation and Arbitration Service (ACAS) for free, impartial advice: https://www.acas.org.uk/

Q11: Can HMRC provide a clear example scenario illustrating how liability is apportioned across multiple parties under JSL?

HMRC The new JSL rules apply on a per-engagement basis, meaning that relevant parties will be jointly and severally liable to pay the sums due in relation to the work that an individual has done for a particular client.

This means, for example, that a recruitment agency will only be jointly and severally liable to pay the sums due in respect of the worker that it has provided to a client, and not sums due in respect of other workers engaged by the same umbrella company.

Where an umbrella company supplies a worker's services to multiple agencies during a pay period, it may amalgamate the payments received into a single payment of earnings to the worker. In such cases, the JSL legislation limits each agency’s liability to the amount arising from their specific engagement, so the overall liability is apportioned accordingly.