Top 5 Chapter 11 JSL myths contractors should know

"Chapter 11 has Collective Liability."

Reality: The law doesn't create industry-wide or sector-wide "collective" liability. It creates joint and several liability on specific "relevant parties" in the supply chain tied to a particular engagement.

Under new section 61Y(2), "each relevant party … is, along with the umbrella company, jointly and severally liable to pay any amount payable, in accordance with the PAYE provisions, by the umbrella company in relation to a qualifying umbrella company payment."

Who counts as a "relevant party" then depends on section 61Z.

In a typical chain where the client contracts with a UK agency and that agency engages the umbrella, the top agency, the party that contracts with the client is the relevant party (not the whole chain).

The client becomes a relevant party only in defined cases (see Myth 2, below).

Practical takeaway: Map your actual contracts. Liability follows the defined "relevant party," not everyone in sight.

"JSL does not apply to an agency chain with no umbrella company in it."

Reality: Chapter 11 defines an umbrella company by what it does, not by what it calls itself: it's the entity that employs the worker and carries on a business of supplying that labour.

If an agency:

(a) pays the worker PAYE and engages them under a contract of service, and;

(b) supplies that worker to the hirer

…then it's wearing the umbrella 'hat' for that engagement, even if there's no separately branded umbrella company in the chain.

When that happens, the contracting chain collapses to two links (client ↔ agency-as-umbrella).

Because the umbrella now contracts directly with the client, the client becomes a "relevant party" and is jointly and severally liable with the umbrella for any PAYE due for that engagement. In other words, turning the agency into the employer doesn't push liability away from the agency; it pulls the client into the frame alongside it.

"If there's no contract of employment and PAYE is being operated, it automatically falls under Chapter 7 of ITEPA (the Agency rules)."

Reality: Chapter 11 contains a specific "purported umbrella company" provision (s61Z1).

Where arrangements are marketed or operated as umbrella-type but the worker is not actually employed by the purported umbrella, the law deems an employment with that purported umbrella and treats all relevant remuneration as earnings.

Critically, it switches off Chapters 7 to 10 for that engagement so that Chapter 11 applies instead. In short, the draft explicitly prevents a no-contract scenario from defaulting to Chapter 7, although this is where umbrella arrangements are in play.

Practical takeaway: Don't assume "no contract of employment + PAYE" means the agency legislation.

If it 'walks and talks' like an umbrella arrangement, Chapter 11's deeming rule is designed to catch and to bring JSL with it.

"An 'employment business' as defined in the 2003 Conduct Regulations is the same thing as 'agency' under the deeming chapters."

Reality: Different regimes, different purposes, different definitions.

The Conduct of Employment Agencies and Employment Businesses Regulations 2003 (and the Employment Agencies Act 1973) regulate market conduct and define "employment agency" and "employment business" for those purposes.

For tax, Chapter 7 uses its own terminology "agency" in s44 and Chapter 11 uses "umbrella company," "client," and "relevant party."

Don't import Conduct Regs labels to decide who is 'on the hook' for PAYE under ITEPA. Use the ITEPA definitions and tests. 

Practical takeaway: When analysing liability to HMRC, start with ITEPA: s44 for agency deeming; ss61Y–61Z1 for the umbrella JSL regime. Treat the Conduct Regs as compliance background, not as decisive for tax liability.

"The term 'Employment' should be read from wider employment law or case law rather than ITEPA."

Reality: For tax, the statutory anchor is ITEPA. Section 4 sets the definition of "employment" for the "employment income Parts," expressly including any employment under a contract of service or apprenticeship (and applying to offices via s5). That is the starting point for tax analysis.

Other regimes (e.g., employment rights in the Employment Rights Act 1996, "worker" status, or NICs legislation) serve different purposes and can use different tests. Don't conflate them when deciding tax liability under Chapter 7 or Chapter 11. 

Practical takeaway: Anchor your analysis to s4 ITEPA for tax, then apply the specific deeming provisions (s44 for agency; ss61Y–61Z1 for umbrella). Resist the temptation to lift definitions from employment rights cases and drop them into tax!