How HMRC’s umbrella company JSL rules will play out
There is extensive legal guidance circulating regarding the draft Finance Bill 2025-26 clauses, particularly concerning interpretations of Joint & Several Liability (JSL) legislation for clients of umbrella companies.
Don’t worry, I’m going to leave the lawyering to the lawyers!
Joint & Several Liability (JSL) rules: the effects of the main thrusts
But as the founder-boss of an umbrella company, I’m more interested in the practical implications for those of us ‘on the ground’ who are going to be affected by JSL from April 2026, ranging from contractors to end-clients -- implications that appear much less reliant on the legislation’s final wording, writes Lucy Smith, managing director of Clarity Umbrella.
But I haven’t got a crystal ball!
Indeed, until even these main thrusts of the JSL legislation are passed into law on April 6th 2026, we are all in speculation mode to varying degrees.
How HMRC’s umbrella company JSL rules will play out
This caveat aside, I want to focus on those parts of the JSL legislation that, barring an 11th hr U-turn from the government and HMRC, invariably won’t change.
Oversimplified, it’s where us umbrella companies don’t expect significant tweaks to the Joint & Several Liability legislation.
In short, it’s how HMRC’s umbrella company JSL rules will play out.
Before I come to those JSL legislative aspects that are as concrete as ‘concrete’ can get pre-April 6th, let’s start with the big picture.
From April 2026 it’s Joint & Several Liability – but for whom?
With effect from April 2026, changes will amend UK tax legislation under ITEPA 2003, with a new ‘Chapter 11’ coming onto the statute book.
Those are the technical references of the new JSL tax legislation for the umbrella company market. But keep in mind, JSL (also known as HMRC’s ‘deemed employer’ plan) isn’t the same as umbrella company regulation.
Positively, a full framework for umbrella company regulation is still going ahead, but it probably won’t come into force until 2027.
Where JSL for umbrella companies’ clients has come from
Some four years ago (November 2021), HMRC launched the “Tackling Non-Compliance in the Umbrella Company Market” consultation. More recently, in June 2023, the government responded to the consultation and proposed what’s often called “Option 3.”
In a nutshell, Option 3 required the umbrella company to operate off the Employer Reference Number of the recruitment agency, making the recruitment agency liable for taxes, while the umbrella remained the employer of record for all employment responsibilities.
The (fortunate) revision of Option 3
This proposal prompted an outcry from the industry, as there appeared to be only six months between the release of legislation and implementation. Oh, and that was aside from a necessary stream of software updates and contractual changes, which could have caused loss of employment rights, and much more in terms of headaches!
Throughout 2024, the umbrella industry, recruitment agencies and some contractors lobbied hard to push back on Option 3. And with an industry working group in place, flanked by an expert looking to provide a better all-round solution for everyone involved, the model of Joint and Several Liability (JSL) was put forward.
Draft legislation was published on 21st July 2025, with Royal Assent and final details expected in November 2025. As widely trailed, April 6th 2026 will see the implementation of the JSL legislation.
Joint & Several Liability legislation: aims and objectives
The new legislation introduces Joint and Several Liability (JSL) for unpaid taxes in the umbrella company supply chain, targeting the top-most agency or Managed Service Provider (MSP).
HMRC’s helpful policy paper on the JSL legislation states that the legislation targets "relevant parties" -- again, that’s typically the top-most agency or MSP in the supply chain.
Who does Joint & Several Liability (JSL) legislation make liable?
JSL will also cover agency workers on employment contracts, and end-clients (if there's a direct relationship with the umbrella company).
And it’s designed to capture non-compliant or fraudulent "purported umbrellas."
It is also interesting to note further relating to liability that, if there is a recruitment agency that owns, or shares directorships, with the umbrella company, HMRC will skip both parties and go straight for the end-client!
The purported umbrella
What does HMRC mean by “purported umbrella?”
I regard the “purported umbrella” as a catch-all term, as it is designed to prevent those who thought they could circumvent the JSL legislation through clever wording.
In essence, the government is saying with its ‘purported umbrella’ clause -- ‘If you look like an umbrella and act like an umbrella, then HMRC is going to treat you as an umbrella!’
So far, so good. Why? Generally speaking, the contractor industry has been making demands with similar effects on policymakers for as long as I can remember – long before the November 2023 consultation.
What does JSL mean for umbrella company contractors, and what changes will JSL bring?
It could be the case that recruitment agencies start to close down their existing PSLs (Preferred Supplier Lists). Such agencies might very well look to work with a smaller number of accredited umbrellas, who reduce their risk of liabilities, and who offer payslip checking, in pretty much real-time.
Recruitment agencies are going to be looking to ensure they are performing much higher standards of ‘due diligence’ on umbrella companies.
And so (and this probably refers more to certain sectors), gone are the days of contractors picking their own umbrella! That said, due to IR35 reform’s effects, that might not be such a massive change for many contractors.
JSL rules: Who the top-most agency is, and why it matters
Bear in mind that the top-most agency in the chain is the agency that carries the HMRC liability under JSL rules.
So if there are a number of agencies in the chain, then it’s that top agency that may well have the say-so on which umbrellas the agencies in the chain may engage with.
What else can contractors expect (before but definitely) from April 2026?
Well, we may see end-clients removing their risk by placing recruiters in the chain as a ‘buffer.’ After all, without an agency, JSL will hit straight on to the end-client (assuming the umbrella is not doing things properly).
So how do you mitigate that?
It’s not rocket science. Talk to your umbrella, ask for access to their ‘diligence’ packs, and make sure you trust the umbrella implicitly.
No get-out from JSL
When it comes to Joint and Several Liability (JSL), the government has been very clear that there will be no “statutory excuse.”
So the agencies, primarily, must get this right because there’s no get-out.
Umbrella contractors will see these practical implications of JSL…
As to contractors, for those who are working via a compliant umbrella company, does JSL spell change?
No, it doesn’t.
But as a contractor, you may -- due to JSL -- very soon find yourself restricted to who you can be ‘employed’ by. This is a possibility that looms large and, just to go against my introduction, may actually still be a bit hazy (as to whether it will come to fruition) after April 6th 2026.
Umbrella regulation? It may be the master key
Let’s hope that, come 2027, when the umbrella regulations are due, the framework provides for a licensing agreement of some description that means contractors will have an argument to choose whatever licensed umbrella they wish. Right now, while there’s not much of it left until the Revenue’s JSL rules begin playing out, only time will tell.