Joint & Several Liability (JSL): The Biggest Shake‑Up to Recruitment Compliance Since IR35

What is coming, why it matters, and how it will impact recruitment agencies and end employers

Joint and Several Liability (JSL) is set to become one of the most significant changes to the UK labour supply chain in decades. From April 2026, HMRC will gain the power to pursue recruitment agencies and end employers for unpaid taxes if an umbrella company fails to meet its PAYE or NIC obligations.

This is not a theoretical risk. It is a structural shift in how responsibility and liability flow through the supply chain. Below is a clear, practical guide to help employers and agencies understand what is changing and what they need to do now.

1. What JSL Actually Is

Joint and Several Liability means multiple parties can be held individually responsible for the same tax debt. If one party fails, HMRC can pursue the others in full.

Under the new rules, if an umbrella company fails to pay PAYE or NICs correctly:

• HMRC can pursue the recruitment agency

• If the agency cannot pay, HMRC can pursue the end employer

Traditional due diligence will not be enough to protect organisations.

2. Why HMRC is Introducing JSL

The umbrella market has been a long standing problem area for HMRC. Issues include:

• disguised remuneration

• tax avoidance schemes

• mini umbrella company fraud

• non payment of PAYE and NIC

• unlawful deductions

• inflated expense models

HMRC believes non compliance persists because the financial risk sits too far down the chain. JSL moves that risk upward to the parties with the most control.

3. Impact on Recruitment Agencies

A. Agencies become financially liable for umbrella failures

If an umbrella underpays tax, HMRC can pursue the agency for the full amount.

B. Due diligence alone will not be enough

HMRC has already stated that traditional due diligence does not create a safe harbour.

C. Higher operational and compliance costs

Agencies will need:

• real time payroll verification

• auditable compliance evidence

• tighter PSLs

• stronger contractual protections

• potentially higher insurance premiums

D. Commercial risk increases

Margins may need to be adjusted to reflect the new liability landscape.

4. Impact on End Employers

End employers are not insulated from JSL. In many cases, they may be more exposed than ever.

A. Liability can pass directly to the end employer

If the agency cannot pay, HMRC can pursue the end employer for the umbrella’s unpaid tax.

B. Increased scrutiny of labour supply chains

End employers will need to:

• understand which umbrellas are being used

• ensure agencies have robust compliance processes

• avoid low cost umbrellas offering inflated take-home pay

5. The Hidden Risk: Moving Away from Umbrella Models

Many organisations will try to simplify their supply chain by:

• moving contractors onto agency PAYE payroll

• converting them to fixed term contracts

• pushing for outside IR35 engagements where appropriate

This appears safer, but it introduces a new problem.

A smaller supply chain does not mean a safer one

When an agency brings payroll in house:

• The supply chain becomes shorter

• The risk becomes more concentrated

• The end employer becomes more exposed

  
  

If the agency mishandles PAYE, NICs, holiday pay or statutory deductions, HMRC can still pursue the end employer. There is no buffer and no insulation.

Removing umbrellas does not remove risk. It simply moves the risk closer to the end employer.

6. Agencies Running Payroll Must Meet Umbrella Level Standards

If an agency chooses to run PAYE payroll, they must be able to demonstrate:

• correct PAYE and NIC deductions

• accurate holiday pay accrual and payment

• compliant RTI submissions

• clean and auditable payroll processes

• no disguised remuneration

• no unlawful deductions

• no margin manipulation

Many agencies are not set up for this level of scrutiny.

7. Mini Umbrella Companies (MUCs)

Mini umbrella companies exploit:

• VAT flat rate schemes

• NIC employment allowance

• short-lived shell companies

  
  

JSL is designed to eliminate MUCs by making agencies and end employers financially responsible if they allow them into the supply chain.

Expect HMRC to target:

• artificially low assignment rates

• overseas directors

• frequent company closures

• unusual corporate structures

8. What a Compliant Supply Chain Looks Like Under JSL

A safe supply chain is defined by its auditability, not its length.

A compliant chain includes:

• a vetted PSL of umbrellas

• real time PAYE and NIC verification

• transparent payroll processes

• strong contractual protections

• documented audit trails

• clear worker communication

• proactive end employer education

9. Practical Steps Agencies Should Take Now

1. Review your umbrella PSL immediately

Remove any umbrella offering inflated take home pay or opaque models.

2. Demand real time payroll evidence

Evidence matters more than promises.

3. Strengthen contracts

Include indemnities, audit rights and compliance warranties.

4. Educate end employers

Most still do not realise they can be liable.

5. Prepare for margin pressure

Compliance costs will rise.

10. Joint & Several Liability Compliance Checklist for End Employers

1. Understand your supply chain

• Which umbrellas are being used

• Who runs the agency’s payroll

• Any signs of mini umbrella activity

2. Demand real time payroll evidence

• PAYE and NIC verification

• RTI submissions

• Holiday pay calculations

• Statutory deductions

3. Assess agency payroll capability

Ask your agency:

• Who operates your payroll

• How you audit your payroll processes

• Whether you can provide real-time PAYE and NIC evidence

• How you manage holiday pay

• What insurance you carry for payroll errors

4. Strengthen contracts

Include:

• indemnities

• audit rights

• compliance warranties

• the right to remove non compliant umbrellas

5. Avoid models that look too good to be true

Red flags include:

• inflated take home pay

• complex payment structures

• overseas directors

• short lived payroll entities

6. Document everything

HMRC will expect:

• audit trails

• PSL rationale

• evidence of checks

• evidence of action taken

Final Thoughts on Joint & Several Liability

JSL is not just another compliance update. It is a fundamental reshaping of responsibility in the labour supply chain. The organisations that prepare early will be the ones best protected.

If your business uses contractors or temporary workers, now is the time to review your supply chain and ensure you are protected. We help employers build compliant, transparent and fully auditable labour supply models that meet the new JSL requirements.

If you want to understand your risk exposure or explore safer, compliant solutions, get in touch, and we will guide you through the changes.