April 2026  |  Compliance & Risk  |  10-minute read

Something significant happened on 6 April 2026. With relatively little fanfare outside industry circles, the UK government fundamentally shifted who is responsible when payroll goes wrong in the temporary labour supply chain. If your agency uses umbrella companies to pay contractors — and the majority do — then the rules that governed your exposure to tax liability have been rewritten. The era of outsourcing risk is officially over.

This post cuts through the noise and explains what Joint and Several Liability (JSL) actually is, why the government introduced it, what it means for your agency in practice, and — most importantly — what you need to do right now to protect your business.

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First, the background: why did this happen?

The umbrella company sector has long been a source of tension in UK employment. On one hand, compliant umbrella companies serve a genuine purpose: they employ contractors, handle payroll, and smooth the administrative complexity that comes with temporary and project-based work. On the other hand, the sector has also been exploited by a minority of operators running non-compliant schemes — artificially inflating take-home pay through disguised remuneration arrangements, loan schemes, or simply failing to remit Income Tax and National Insurance Contributions (NICs) to HMRC.

The financial cost has been substantial. HMRC estimates the annual tax gap from umbrella non-compliance at around £500 million. Beyond the revenue loss, non-compliant schemes harm the very workers they claim to benefit — exposing contractors to unexpected tax bills, loss of employment rights, and financial instability. For agencies and end clients operating honestly, they create an unfair commercial playing field.

The previous government consulted on solutions from 2023. The current government announced the JSL measure at Autumn Budget 2024, it was legislated for in the Finance Bill 2025-26, and came into force this month. The Employment Rights Act 2025 received Royal Assent in December, and the Fair Work Agency — a new body to enforce workers’ rights across the labour market — launched simultaneously with JSL in April 2026. Wider regulation of umbrella companies specifically is expected to follow in 2027. The direction of travel from government is unambiguous: every party in the supply chain will be held accountable.

So what exactly is Joint and Several Liability?

Joint and Several Liability means that more than one party can be held legally responsible for the same tax debt. In the context of the temporary labour supply chain, it allows HMRC to recover unpaid PAYE Income Tax and Class 1 NICs — and potentially interest and penalties — from a recruitment agency or end client if the umbrella company in their supply chain fails to remit those taxes correctly.

The key word here is “several”. HMRC is not required to pursue the umbrella first, apportion blame proportionally, or prove that the agency caused the non-compliance. Under JSL, HMRC can recover 100% of the outstanding debt from whichever party it determines is most appropriate or most able to pay. In most cases, that party will be the recruitment agency — the business directly above the umbrella in the supply chain and holding the contract with the end client.

Critically, this is a strict liability regime. There is currently no “reasonable care” defence built into the legislation. That means even if your agency carried out checks, followed best practice, and acted in complete good faith — HMRC can still come to you if the umbrella’s tax payments fall short. “We did our due diligence” is not, by itself, a defence that makes you immune from liability.

JSL does not apply in every scenario. Self-employed contractors genuinely operating outside IR35 are not affected, as no PAYE obligation arises elsewhere in the supply chain. But for the hundreds of thousands of workers engaged through umbrella companies, and the agencies that place them, this is a material change in the risk landscape.

What does this actually mean for your agency?

Let’s be direct about the implications.

Your financial exposure has increased — significantly

Prior to April 2026, non-compliance with PAYE obligations sat almost entirely with the umbrella company. HMRC’s primary recovery route was the umbrella itself and, in some cases, individual workers. From April, that is no longer the case. If an umbrella on your books fails — whether through deliberate fraud, mismanagement, or simple error — you as the placing agency could receive a tax determination from HMRC. The liabilities can include unpaid Income Tax, NICs, interest, and penalties. For agencies placing large contractor populations, even a single non-compliant umbrella can translate into a very significant sum.

Compliance is now a board-level financial risk issue

JSL turns compliance from a back-office administrative function into a direct financial risk that belongs on the board agenda. Oversight of umbrella partners is now part of your governance responsibility — not a nice-to-have. HMRC and your clients alike will expect to see documented evidence of due diligence on umbrella providers, proof that PAYE and NICs are being operated correctly, and records that would hold up under audit or investigation.

Your Preferred Supplier List is now your front line of defence

Which umbrella companies you work with, and how you select and monitor them, has become one of the most consequential decisions your agency makes. The days of long-tail PSLs with dozens of loosely vetted umbrella partners are effectively over. Agencies across the sector are already reducing their PSLs sharply, insisting on accreditation from recognised bodies such as the FCSA or Professional Passport, and demanding real-time payroll verification data. The commercial incentive and the legal incentive now point in exactly the same direction: work only with partners you are genuinely confident in, and be able to prove it.

There are unintended consequences to watch

It is worth acknowledging that the rapid tightening of PSLs is creating some friction on the ground. Contractors are being asked — sometimes pressured — to migrate to new umbrella companies ahead of JSL compliance deadlines, and the legal presumption that workers will be transferred under TUPE (the Transfer of Undertakings Regulations) does not always apply automatically. Workers switching umbrellas mid-assignment may face the loss of built-up employment rights, disrupted tax codes, and potential loss of accrued holiday pay. These are unintended consequences of agencies acting to protect themselves, and they are generating contractor dissatisfaction. Managing this transition carefully — with clear communication and genuine consideration for your contractors — matters both ethically and commercially.

What should your agency be doing right now?

JSL is now live. If your agency has not already taken action, the following steps represent the minimum expected standard.

• Audit your supply chain. Map every contractor currently on your books and identify every umbrella company in your supply chain. Review your contracts to understand precisely where you sit in the JSL chain. This is your baseline.
• Review and rationalise your PSL. For each umbrella on your list, verify that they hold current, recognised accreditation, can provide real-time evidence of PAYE and RTI submissions, have transparent payslip processes, and have the financial resilience to meet their obligations. Remove any provider you cannot verify. A tighter, well-governed PSL is a more defensible position than a broad one.
• Implement ongoing monitoring, not one-off checks. Due diligence under JSL is not a box-ticking exercise performed at onboarding. HMRC will look at whether your agency took meaningful, continuous steps to manage supply chain risk. Build regular compliance review cycles into your operations.
• Review your contractual protections. Ensure your agreements with umbrella companies include appropriate representations, indemnities, and audit rights. These will not shield you from HMRC, but they provide commercial recourse if a partner causes you loss.
• Communicate clearly with contractors and clients. If you are changing your PSL or requiring contractors to migrate to new providers, manage this transparently. Explain your reasoning, allow reasonable notice, and take TUPE obligations seriously.
• Document everything. HMRC will expect evidence of your governance processes. Records of due diligence checks, compliance audits, PSL rationale, and contractor communications should all be retained. If you cannot demonstrate the steps you took, they may as well not have happened.

Is this purely bad news for the sector?

Not entirely. The honest answer is that JSL is primarily bad news for non-compliant operators — and good news for the agencies and umbrella companies that have always done things properly.

For too long, rogue umbrella companies have been able to compete on artificially low margins by failing to meet their tax obligations, undercutting compliant businesses and eroding trust in the sector as a whole. JSL removes their route to market. An agency that will not work with unverifiable umbrella partners — which is the only rational response — effectively bars non-compliant providers from accessing contractor placements. That is by design. HMRC has been explicit that the policy aim is to use agencies and end clients as a mechanism for driving non-compliant providers out of the market.

For agencies that invest properly in compliance infrastructure, JSL also becomes a competitive differentiator. Clients — particularly larger organisations — are already scrutinising the supply chain compliance credentials of the agencies they work with. Being able to demonstrate robust, documented due diligence processes builds trust, retains contracts, and positions your agency as a serious, long-term partner rather than a transactional supplier.

The bigger picture: this is just the beginning

JSL does not exist in isolation. It sits alongside the Employment Rights Act 2025, the launch of the Fair Work Agency, and anticipated umbrella sector-specific regulation expected in 2027. The government has signalled clearly that accountability is moving up the labour supply chain, and that every party who profits from the placement of workers will be expected to take genuine responsibility for those workers’ rights and their correct taxation.

JSL is projected by the Office for Budget Responsibility to generate £2.8 billion by 2031. The government is serious. HMRC is serious. The recruitment sector needs to be equally serious in response.

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Final thought

The recruitment agencies that will navigate JSL successfully are those that treat compliance not as a burden imposed upon them, but as an integral part of how they operate. The question is no longer whether you can afford to invest in rigorous supply chain governance. The question — given the financial exposure now attached to getting it wrong — is whether you can afford not to.

Note: This blog post is intended for general informational purposes only and does not constitute legal or tax advice. We recommend seeking guidance from a qualified legal or tax professional regarding your agency’s specific circumstances.