Joint & Several Liability: umbrella company and recruitment agency user overview
On Thursday June 12th 2025, the government held a meeting with 13 representatives of the contractor supply chain concerning the umbrella company tax compliance policy.
Joint & Several Liability: a new direction of travel
At that meeting, HMRC announced that the direction of travel for the tax compliance policy is going to be “Joint and Several Liability.” In the absence of an official announcement, tax lawyer Rebecca Seeley Harris of Re Legal Consulting Ltd, advises ContractorUK readers what to expect.
What is the UK’s umbrella company tax compliance policy?
As a quick reminder, at Autumn Budget 2024, the government stated its intentions to change who the “deemed employer” was in the contractor supply chain from the umbrella company to the recruitment agency or employment business. This was “Option 3” in the 2023 consultation, Tackling Non-Compliance in the Umbrella Company Market. If there is no agency in the contractor supply chain, the end-client will become the deemed employer. This measure is to be implemented in April 2026 and that commencement date hasn’t changed.
General contractor industry approval (and my sign-off as well)
The news of the June 12th announcement by HMRC has been met with approval, in general, by those in the contractor supply chain and by me, as “Joint and Several Liability” (JSL) was one of the solutions that I recommended in an independent report I authored on umbrella company reform.
And JSL was also the solution backed by the Freelancer & Contractor Services Association, following my report.
What is Joint and Several Liability (JSL) in the umbrella-agency chain?
The reason that JSL is important is because it means that the Employer Reference Number (ERN) can remain with the umbrella company, but that the recruitment agency will have primary responsibility for any shortfall in tax.
This liability will extend to the end-client if there is no agency in the chain.
From what the tax authority has signalled to me, JSL achieves the policy aims of HMRC, as the debt against the agency is going to be automatic and does not have to be transferred.
Joint and Several Liability (JSL) is not ‘Shared Liability (SL)
It is important to distinguish between Joint and Several Liability (JSL) and Shared Liability (SL).
The latter is not a concept generally applied to tax law because HMRC would not be able to recover the whole from one party, which is the crucial point. In such Shared Liability, each party is liable for a proportion and can only be pursued for that portion.
A government in listening mode…
In addition to my report, HMRC has been provided with ample evidence concerning the compliant umbrella market from other representatives in the labour supply chain.
Other solutions were suggested but, overall, many voices were putting forward the argument that the compliant market should be allowed to continue to operate. In this instance, the government has listened to the feedback and appears to have taken it on board.
Direction of travel: six parts to HMRC’s June 12th announcement
As there was no official announcement at or after last Thursday’s meeting, the following six key points were clarified by HM Treasury on June 12th:
- JSL isn’t draft law yet: HMRC has reported that JSL is the ‘direction of travel’ but it still has to be signed off officially by the Exchequer Secretary to the Treasury, James Murray MP.
- JSL confirmation should be about month from now: The draft legislation is expected to be published on Legislation Day, otherwise known as 'L-Day,' in the middle of July.
- Absolute liability: The recruitment agency will have no defence or ‘statutory excuse’ if they contract with a non-compliant umbrella company and there is a shortfall in tax.
- Primary liability: The primary liability will sit with the agency nearest to the end-client and such an agency will have primary liability. This means that HMRC would not have to apply to have the debt transferred. As long as everything is compliant, the umbrella company can continue to pay the taxes and it will be business-as-usual but with an increased level of compliance.
- No statutory excuse: A statutory excuse or defence is where the agency would say perhaps that they took “reasonable care” and that would be a defence against HMRC holding them liable. This can be seen in Chapter 10 ITEPA or the Off-Payroll Working rules. But there is going to be no statutory excuse in the pending legislation for the umbrella tax compliance policy.
- A new chapter in Income Tax (Earnings and Protections) Act 2003: The new umbrella tax policy will be a new piece of legislation and not an adaptation of s.44 ITEPA (as some commentators thought). The Parliamentary Counsel is currently drafting a new chapter in ITEPA.
What does Joint & Several Liability (JSL) mean for umbrella contractors?
Firstly, it is likely to mean that there will be more compliance, but that may mean less choice for contractors.
The recruitment agency will be responsible for doing their ‘due diligence’ to ensure that they do not contract with an umbrella company that has a non-compliant offering. For example, higher than usual take-home pay.
There is an array of umbrella operations that promote tax avoidance schemes (that can be seen on the HMRC ‘name and shame’ page).
What are JSL’s two key objectives?
JSL aims to deter the recruitment agency from contracting with these operations because the agency would be liable for any shortfall in tax.
Secondly, JSL should mean that HMRC will pursue the recruitment agency and not the contractor.
While the above implications for contractors are my understanding at the time of writing, they will all need to be confirmed when the draft legislation is published next month.
Umbrella company employer? Contractors, you shouldn't have to move
The upshot of the June 12th meeting is that the contractor should be able to remain with their existing umbrella company employer.
If the ERN had been moved to the agency, the contractor could potentially have been transferred from the umbrella to the agency, but as an agency worker, not an employee.
Again, though, it all depends on the wording of the draft legislation.
Umbrella Regulation, it’s a coming…
In conjunction with the change in tax policy, the government is also looking to regulate umbrella companies.
This regulation will come under the remit of the Department for Business and Trade (DBT).
It is understood that DBT will be launching a consultation on umbrella company regulation in the autumn. It is expected that umbrella companies will be brought under the Conduct of Employment Agencies and Employment Businesses Regulations 2003.
Fair Work Agency (FWA)
As part of the consultation, umbrella companies will likely be regulated by the new Fair Work Agency (FWA).
The regulation will deal with issues such as holiday pay and assignment rates, with the FWA tasked to police the sector.
Lords Holmes’ umbrella company licensing authority is also a go
It is also possible that there will be a licensing authority for umbrella companies. This is part of an amendment to s.34 in the Employment Rights Bill and has been proposed by the FCSA.
Lord Holmes is currently working on getting such a measure introduced. If there is a licensing authority, all UK umbrella companies would have to be licensed, which would be another level of scrutiny.
Overdue umbrella company changes? They should now be here in just 9 months…
The Labour government is actively bringing in wide-ranging reforms for the umbrella company market both in tax policy and regulation and it is not before time. I have been campaigning for change under the #Fair Umbrella campaign for many years, so I am pleased to see change is coming, alongside an innumerable volume of contractors who I sense feel exactly the same.
