From April 2026, new HMRC rules mean that if an umbrella company manipulates your tax, the liability for any unpaid tax, in most cases, should fall on the recruitment agency (or sometimes the end-client) — not you.
Umbrella legislation from April has one big upside, three snags
These 'JSL' or 'Joint & Several Liability' rules therefore represent good news for contractors. But they could also mean fewer choices of umbrella company, sudden payroll changes, and other potential disruptions.
Here, exclusively for ContractorUK, I will explain why staying informed and keeping good records will be key for contractors and others affected by these new umbrella company rules, effective from 2025-26, writes Meredith McCammond, technical tax officer at LITRG.
New umbrella company JSL rules: introduction
So, big changes are coming to the way that HMRC deals with umbrella companies.
From April 2026, new rules are intended to shift responsibility for unpaid tax arising from Disguised Remuneration (DR) away from contractors and onto the agencies — and in some cases, the end clients — that sit above umbrellas in the labour supply chain.
On the face of it, this should mean better protection for workers who may currently be the ones pursued by HMRC for unpaid PAYE.
The devil will be in the Joint & Several Liability detail
However, as with any reform, the devil is in the detail — which we do not yet have, despite the commencement date now being not even 26 weeks away (at the time of writing).
As we at the Low Incomes Tax Reform Group (LITRG) highlighted in our submission about the draft legislation to HMRC, contractors may also face disruption, tighter restrictions on which umbrellas they can work through, and new payroll complications.
Let's now turn to the main areas where contractors and other JSL rules stakeholders need clarity from HMRC, together with some practical considerations for contractors.
Why HMRC is reforming the umbrella company market
Umbrella companies have long played a role in the temporary labour market. At their best, umbrellas provide a straightforward way for contractors to get paid, with PAYE tax and NIC deducted at source. Unfortunately, the sector has also attracted bad actors.
Some umbrellas have used disguised remuneration schemes to inflate workers' take-home pay or cut their own costs.
DR arises when an employer fails to operate PAYE properly, but the problem is that, under its current approach, HMRC sometimes pursues the worker to make up the shortfall — even if the worker had no idea anything was wrong!
A systematic tackling of Disguised Remuneration
The current Labour government wants to tackle DR systemically, by changing incentives and behaviours in supply chains.
At Autumn Budget 2024, it was confirmed that 'Option 3' of umbrella market reform plans tabled by the prior Conservative government would go ahead and apply from April 2026.
Therefore, legislation will be introduced in Finance Bill 2025-26 to implement Option 3.
Recruitment agencies can no longer wash their hands
But it will be implemented in a way that allows umbrellas to continue running their own PAYE payrolls, though also lets HMRC hold agencies (and sometimes end-clients) Jointly and Severally Liable (JSL) for any unpaid tax.
In practice, JSL means recruitment agencies can no longer 'wash their hands' of what umbrellas do.
If they choose to engage a non-compliant umbrella, agencies could end up footing the tax bill to HMRC.
What knock-on effects for contractors of new umbrella JSL rules?
For contractors, the main headline is that — in most cases — you should no longer be chased personally for unpaid PAYE caused by umbrella company malpractice.
There may still be some exceptions.
For example, under Regulation 72 of the PAYE Regulations (which is not changing), HMRC can transfer PAYE liability to an employee where a payroll error has been made in good faith despite "reasonable care," or where the employee has colluded in the under-deduction.
With JSL, HMRC must outline worker liability instances
In view of this, we think it is important that HMRC clarifies exactly when — if ever — liabilities could still sit with workers.
Elsewhere in our submission on the draft umbrella company legislation, we also highlight risks of unintended consequences.
In particular, if HMRC rarely pursues umbrella companies directly, this could weaken compliance incentives. Small agencies with limited assets could fold to avoid liabilities, encouraging more reckless behaviour in non-compliant parts of the market — and creating instability for contractors. HMRC needs a clear strategy to ensure accountability in such cases.
Watch Autumn Budget 2025 for umbrella JSL guidance/tool
Therefore, although the JSL principle is positive, unanswered questions remain.
Until HMRC publishes detailed guidance — potentially at Autumn Budget 2025 — contractors should remain cautious.
[Editor's Note: At Autumn Budget 2024, the government said it would "publish an online tool to help workers and agencies understand pay from umbrella companies, as well as further guidance." The government also said both resources would help businesses affected by JSL with the April 2026 "implementation of the measure."]
Disruption
In addition, umbrella company contractors should expect some practical disruption as the new JSL rules from HMRC bed in.
Some agencies may want to reduce their risk, so they might narrow down the list of umbrellas that they are willing to work with.
Your ability (as a contractor) to choose an umbrella could therefore shrink considerably.
Three realities if an agency stops using your umbrella company
If an agency stops using your umbrella (or umbrellas altogether), you may be moved onto a new payroll or in-house PAYE.
This means three things:
- Your employment with the umbrella ends, and the agency (or a new umbrella) becomes your employer for tax purposes.
- You go through a leaver/starter process. HMRC may issue you a new tax code, which could lead to temporary over- or under-payments. This may complicate your tax position and require intervention to fix.
- A change of employer may also raise issues with continuity of employment, workplace pensions (particularly if the new employer uses a different scheme), pay arrangements, and other administrative processes.
JSL isn't isolated; it's next to mandatory tax adviser registration
These new umbrella company JSL rules from HMRC do not sit in isolation.
Around the same time that JSL comes into force, HMRC also plans to introduce mandatory registration for tax advisers, setting minimum standards for those who give tax advice or run payroll on behalf of others.
It is not yet clear whether all umbrella companies will be in scope of these registration rules (effective from April 1st 2026).
On one hand, they process payroll as employers, not advisers. On the other hand, they sometimes provide accountancy services, promote particular pay structures and influence workers' tax positions.
Are umbrella companies in scope of compulsory registration rules for tax advisers?
If umbrellas are brought within scope, they will face an extra layer of requirements, just as JSL begins. And if they fail to meet those requirements, they could temporarily lose the ability to interact with HMRC — including making payroll submissions.
We have asked HMRC to confirm its position. We will report back to ContractorUK readers as soon as we know.
New umbrella company JSL rules: overview of this guide
Although these umbrella company reforms from April 2026 should ultimately be positive for workers, umbrella company contractors should prepare for a period of adjustment.
The best way to protect yourself during this period of JSL-induced adjustment is to take action.
Top 4 'umbrella JSL' protection steps for contractors
In particular, we recommend umbrella workers/contractors take four protective steps:
- Stay informed — monitor GOV.UK for new guidance on the finer points, and use reputable, impartial sources like ContractorUK and LITRG for confirmation and expert advice.
- Be alert to any changes in your employment arrangements and review them carefully, seeking professional advice if necessary.
- Keep on top of how your umbrella is dealing with your pay and tax by checking your payslips — including through our free payslip audit service.
- Retain records — keep contracts, pay documents, and all communications (including HMRC letters) in case any problems arise.
Final thought ahead of April 2026
In short, these new umbrella company JSL rules from HMRC
should protect contractors, but expect some disruption and take the four steps above to protect yourself.
