Joint and Several Liability: What Every Recruitment Agency Needs to Know Before April 2026
About the Expert Panel
AGPayroll assembled five of the industry’s leading voices in compliance, law, accreditation, and recruitment networking to address the questions that matter most to agencies preparing for the Joint and Several Liability (JSL) legislation taking effect in April 2026.
Chris Fahey : Owner of AGPayroll. Over 20 years in the payroll industry. SafeRec certified, FCSA accredited, and Contracting Awards Umbrella Company of the Year.
Julian Ball: Independent Director on the Board of the FCSA. Over 20 years’ experience in the umbrella company sector.
Paul Chamberlain: Head of Employment and People Solutions at JMW Solicitors. Over 30 years’ experience in employment law with deep expertise in the recruitment sector.
Sebastien Sauca: CEO of SafeRec. Provides certification for umbrella companies and a SaaS compliance platform for recruitment agencies.
Simon Bliss: Chairman of the TEAM Recruitment Network. Supports over 500 small-to-medium recruitment businesses across the UK.
Steve Jones: Supports recruitment agencies with funding, back-office admin, compliance, and risk mitigation. Former umbrella company operator with 10+ years’ experience.
Executive Summary
The introduction of Joint and Several Liability (JSL) under a new Chapter 11 of ITEPA, effective from April 2026, represents the most significant compliance shift in the recruitment industry in decades. For the first time, recruitment agencies—and in some cases, end clients—will be held directly liable for unpaid PAYE and NIC obligations arising from umbrella companies in their supply chain.
An AGPayroll poll of 100 agency owners revealed that 80% were not aware of the incoming legislation. This white paper, drawn from a roundtable discussion with five leading industry experts, sets out what the legislation means in practice, how agencies should prepare, and answers the most common questions being asked by agencies and contractors across the UK.
The Core Change
Under JSL, if an umbrella company fails to pay the correct amount of PAYE or NIC, the recruitment agency sitting above it in the supply chain becomes jointly and severally liable for that unpaid tax. Where there is no umbrella and the agency pays workers via its own PAYE, the liability can extend to the end client. There is no statutory defence based on due diligence alone—this is strict liability.
1. Understanding Joint and Several Liability
1.1 What Is JSL and How Does It Work?
The draft legislation, published on 21 July 2025, introduces Joint and Several Liability via a new Chapter 11 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), effective from 6 April 2026. The core mechanism is straightforward: where an umbrella company fails to account for PAYE or NIC correctly, the “relevant party”—typically the recruitment agency with a direct contractual relationship with the end client—becomes jointly liable for the shortfall.
Key structural points from the draft legislation include:
The umbrella company retains the Employer PAYE reference.
The “relevant party”—the lead agency (or end client where no agency exists)—is held strictly liable for any tax underpayments.
No statutory excuse applies. Due diligence alone is not a legal defence.
In multi-agency supply chains, only the “top agency” (the one with the direct client contract) appears to bear liability.
“Purported umbrellas” are defined to catch mini-umbrella arrangements and fraudulent schemes.
Further legislation will extend JSL to cover NIC via amendments to the Social Security Contributions and Benefits Act 1992.
HMRC will be able to issue a Regulation 80 determination directly to the jointly liable party. Agencies have 30 days to appeal or the determination becomes an enforceable debt.
“There’s a misconception that due diligence is the answer. It’s part of the risk mitigation, but it can’t be a complete answer to the issue. The revenue won’t be remotely interested in what due diligence you did—you’ll just be on the hook for the payment.”
— Paul Chamberlain, JMW Solicitors
1.2 How Will HMRC Enforce It?
The panel discussed at length how HMRC intends to enforce the new provisions. There is precedent in existing VAT legislation (V18), where HMRC goes after the primary offender first but moves swiftly to the next party in the chain if recovery looks unlikely.
Julian Ball noted that the legislation makes enforcement relatively straightforward for HMRC: they can identify underpayments through RTI submissions, compare those against actual payments, and serve notice on the agency. Sebastien Sauca confirmed that HMRC have communicated in their own webinars that they intend to approach the recruitment agency first if the umbrella company fails to pay.
Practically, the panel expects HMRC to focus initially on the most egregious cases—particularly those involving mini-umbrella companies and known avoidance schemes—before broadening enforcement across the market.
“As the legislation’s drafted, they can go after both at the same time. But to establish the debt first, they must surely go to the umbrella and say, we think you’ve got this wrong. We’re yet to see the guidance notes, but the legislation makes it easy for them.”
— Julian Ball, FCSA Board
2. Practical Implications for Agencies
2.1 The 80% Awareness Gap
AGPayroll’s LinkedIn poll revealed that 80% of recruitment agency owners were unaware of the JSL legislation. This is not surprising given that, as Sebastien Sauca highlighted, only around 3,000–4,000 of the estimated 40,000 recruitment agencies in the UK are represented by bodies such as the TEAM Network, the REC, or APSCo that actively educate their members. Julian Ball suggested that initially, an unprepared agency may not feel any immediate consequences—particularly if their umbrellas are paying correctly. However, the liability is building silently, and it will surface when auditors ask how the agency is protecting itself, when a sale or acquisition is on the table, or when HMRC comes knocking.
2.2 The Mini-Umbrella Problem
Mini-umbrella companies exploit the Employment Allowance (exemption from the first £10,500 of employer NIC) and the VAT Flat Rate Scheme to avoid paying the correct tax. They do so by creating and dissolving a series of small limited companies, cycling workers through them to repeatedly claim these reliefs. The panel was unanimous: agencies using mini-umbrella arrangements must exit them immediately. From April 2026, JSL makes this a business-ending risk. Julian Ball expects mini-umbrellas to be HMRC’s first enforcement target, and the Criminal Finances Act could extend liability beyond the agency itself to individuals in senior management who knowingly facilitated the arrangement.
How to Spot a Mini-Umbrella
The most visible sign is that the employer name on a contractor’s payslip changes every few months—for example, from “Joe Blogs Ltd” to “Jimmy Blogs Ltd.” The agency typically deals with a single “parent” company, so the arrangement can be obscured. The only reliable way to confirm compliance is to audit that the correct taxes are being calculated, reported through RTI, and paid to HMRC.
2.3 Due Diligence: Necessary but Not Sufficient
A recurring theme throughout the roundtable was the critical distinction between due diligence as risk mitigation and due diligence as a legal defence. Under JSL, there is no statutory defence. Due diligence cannot eliminate liability—it can only reduce the probability that a liability arises in the first place. Sebastien Sauca outlined a five-step compliance framework that agencies should work towards:
Verify that payroll is being operated correctly (processes, software, calculations).
Confirm that expenses are being treated properly with supporting receipts.
Check that taxes are accurately calculated on payslips.
Verify that RTI submissions are being made correctly to HMRC.
Obtain evidence that taxes have actually been paid to HMRC.
The panel stressed that paying the liability is only the final step. An umbrella could pay every penny to HMRC but still have calculated the tax incorrectly, creating a liability through underpayment.
“There is no checklist to tick off. HMRC is not going to look at a recruitment agency and see tick box, tick box, tick box and say that’s fine. The goal is for agencies to put systems of control in place to get evidence that taxes have been accurately calculated, disclosed, and paid.”
— Sebastien Sauca, CEO, SafeRec
2.4 Contractual Indemnities: Comfort, Not Protection
Many agencies have asked whether contractual indemnities from umbrella companies can transfer the JSL risk. The panel’s answer was clear: indemnities cannot transfer the statutory liability. If HMRC comes calling, the agency is on the hook regardless of any contractual arrangement.
Paul Chamberlain put it bluntly: if the umbrella hasn’t accounted properly for tax, it’s unlikely to have enough money to honour an indemnity. Some agencies have explored seeking personal guarantees from umbrella company directors—understandably, most directors have declined.
Julian Ball offered a pragmatic view: having indemnities is better than not having them, because if the umbrella does have remaining assets, the agency can pursue recovery. But no agency should rely on an indemnity as its primary protection.
2.5 Insurance: An Emerging Solution
The panel discussed the emergence of insurance products designed to cover JSL risk, including a product linked to the SafeRec platform called Orbio. These products aim to insure against the financial consequences of an umbrella company’s failure to pay the correct tax.
Julian Ball expressed scepticism about the long-term viability of such products, noting that if claims become frequent, insurers will exit the market. However, Sebastien Sauca argued that where insurance is linked to a robust compliance process—auditing payroll accuracy and tax payments monthly—the risk profile is fundamentally different and the product becomes more sustainable.
The panel agreed that agencies should carefully review the policy wording of any JSL insurance product to understand precisely what is and is not covered, including whether insolvency of the umbrella is covered.
2.6 The TUPE Dimension
Paul Chamberlain raised a critical issue that he believes has gone under the radar: the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Where an agency decides to bring payroll in-house or shorten its PSL of umbrella providers, this can constitute a “service provision change” under TUPE. The consequence is that workers previously employed by the outgoing umbrella transfer to the agency (or the new umbrella) on their existing terms and conditions, with continuous service intact.
This creates a potentially significant liability that agencies must factor into their decision-making. TUPE is not a reason to avoid cleaning up the supply chain, but it does need to be managed carefully with proper legal advice.
2.7 The Opportunity for Prepared Agencies
Despite the challenges, the panel was unanimous that JSL creates significant commercial opportunities for agencies that get on the front foot. Simon Bliss and Chris Fahey both emphasised that compliance-savvy agencies can win business by demonstrating to end clients that their supply chain is properly managed.
“If I was a recruitment business, I’d say to my clients: you’ve got nothing to worry about, because we are the relevant person for this legislation. The liability doesn’t go up to you. As long as there’s an umbrella at the bottom and a recruitment agency in the middle, the agency is the next point of call—not you.”
— Julian Ball, FCSA Board
Agencies that can articulate this to compliance directors, finance directors, and legal teams at end clients will differentiate themselves from competitors who are burying their heads in the sand.
3. Your Questions Answered
The following questions were submitted by agencies and contractors during the roundtable and in the weeks leading up to it. Where applicable, answers draw on the views of the expert panel and current legislative guidance.
Q1: Will HMRC seek retrospective action against contractors who may not have paid the correct tax/NIC before 6 April 2026?
No—not under this specific legislation. JSL is forward-looking; it comes into force on 6 April 2026 and does not apply retrospectively. However, as both Julian Ball and Sebastien Sauca stressed, other existing legislation—including the Offshore Intermediary Legislation (in place since 2014)—already gives HMRC powers to pursue underpayments. HMRC can look back up to four years (or six in cases of carelessness or deliberate avoidance) under existing rules. Moving to a compliant umbrella now does not create new retrospective exposure, but it does not erase historical liabilities under pre-existing legislation either.
Q2: Is the anti-avoidance provision going to make PAYE agency workers engaged on contracts for services a tax liability for end users?
The legislation defines “umbrella companies” broadly enough to include employment businesses and intermediaries that directly engage workers under a contract of employment. However, recruiters are not being “deemed the employer.” The critical point is: where an agency pays workers via its own PAYE (without an umbrella), and there is an underpayment, the liability can extend to the end client. Where there is an umbrella in the chain, the liability sits with the umbrella first and then the agency—the end client is insulated by the agency’s presence in the chain. Agencies should therefore consider whether paying self-employed workers directly creates unnecessary exposure for their clients, and whether moving those workers onto a compliant umbrella arrangement may actually reduce risk across the supply chain.
Q3: Should agencies issue new contracts to their PSL umbrella companies with JSL-specific language?
Yes, agencies should update their contracts with umbrella providers as soon as possible—ideally now, rather than waiting until April 2026. Contracts should include provisions covering: the umbrella’s obligations to comply with all PAYE and NIC requirements; the umbrella’s obligation to provide evidence of tax payments on a regular (monthly) basis; representations regarding accreditation status (SafeRec, FCSA, or both); indemnity clauses (acknowledging their limitations as discussed above); rights to audit the umbrella’s payroll processes; and termination rights if the umbrella loses accreditation or fails to evidence compliance. The panel recommends seeking specialist legal advice on the precise wording, as generic indemnity clauses are unlikely to be sufficient.
Q4: If unpaid tax is tax that HMRC determines the candidate should have paid, is there any circumstance where the candidate pays it rather than the agency or umbrella?
Under the JSL framework, the liability mechanism targets the supply chain—umbrella first, then agency (or end client). The legislation is designed to make the entities in the supply chain accountable for ensuring PAYE is operated correctly. However, this does not mean a contractor can never be liable. If a contractor has engaged in deliberate tax avoidance—for example, through a disguised remuneration scheme or a loan charge arrangement—HMRC can and does pursue the individual directly under separate legislation. The JSL provisions are not a blanket shield for contractors, but they do place the primary enforcement burden on the supply chain rather than the individual worker.
Q5: Do candidates need to resign from their umbrella companies to avoid TUPE implications?
This is one of the most nuanced issues to emerge from the roundtable. Paul Chamberlain explained that where an agency shortens its PSL or changes umbrella provider, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. Under TUPE, workers transfer automatically to the new provider on their existing terms and conditions with continuous service intact. A contractor voluntarily resigning and then joining a new umbrella may circumvent TUPE, but this must happen genuinely and voluntarily—any direction or compulsion from the agency to resign could be challenged as a sham. Agencies should take legal advice before directing contractors to resign, and should document any transitions carefully.
Q6: It’s not just about due diligence—what checklist should agencies follow?
As Sebastien Sauca explained clearly during the roundtable, there is no tick-box checklist that HMRC will accept as a defence. However, the following framework represents best practice for agencies seeking to minimise risk:
Background checks: Verify the umbrella’s company structure, ownership, and registration history.
Accreditation: Work only with umbrellas that hold SafeRec certification, FCSA accreditation, or both.
Payroll process review: Satisfy yourself that the umbrella’s payroll software and processes are producing accurate calculations.
Payslip auditing: Regularly audit sample payslips to ensure deductions match statutory requirements.
RTI verification: Confirm that Real Time Information submissions to HMRC are accurate and timely.
Tax payment evidence: Obtain monthly proof that the umbrella has paid the correct tax and NIC to HMRC. This is the critical step most agencies miss.
Financial stability monitoring: Even a perfectly compliant umbrella can create liability if it becomes insolvent and cannot pay HMRC.
Contractual protections: Include audit rights, compliance obligations, termination triggers, and indemnities in your umbrella agreements.
Q7: If an agency uncovers gaps in a supplier during due diligence, must they notify HMRC?
The panel confirmed there is no strict legal obligation on a recruitment agency to notify HMRC of compliance shortfalls discovered at a supplier. As Julian Ball noted, unlike accountants or solicitors, recruitment agencies do not operate under a money laundering reporting regime that would require such disclosure. However, Paul Chamberlain cautioned that if an agency believes it may come under HMRC scrutiny, transparency and openness with HMRC is always advisable as a protective measure. The pragmatic approach, as Julian suggested, is to draw a line: exit the non-compliant supplier immediately, move workers to a compliant provider, and document every step of the transition.
Q8: How do we reconcile needing greater control over our umbrella supply chain with the rule that contractors can’t be forced to use a particular umbrella?
This is a genuine tension in the market. Agencies are being advised to shorten their PSLs to improve oversight, yet the legislation and good practice principles state that contractors should not be compelled to use a specific umbrella company. The practical reality is that agencies can designate an approved PSL of compliant umbrellas and require contractors to choose from that approved list. This is different from forcing a contractor to use one specific provider. By maintaining a PSL of two or three rigorously vetted, accredited providers, agencies can exercise meaningful control whilst still offering contractors a genuine choice. What agencies should avoid is directing all workers to a single provider, particularly where that direction is motivated by commercial arrangements such as rebates rather than compliance considerations.
Q9: Does JSL also cover self-employed workers directly engaged by the agency?
The JSL provisions are specifically targeted at arrangements involving umbrella companies. However, the definition of “umbrella company” in the draft legislation is deliberately broad and includes entities that engage workers under a contract of employment. Where a worker is genuinely self-employed and directly engaged by a service provider (not a recruitment agency), the JSL provisions as currently drafted would not typically apply. However, if that self-employed worker is actually operating through a disguised employment arrangement, the existing IR35/off-payroll working rules and other HMRC enforcement tools remain relevant. The broader Employment Rights Act reforms are also expected to introduce a statutory definition of self-employment, which may affect some of these arrangements. Agencies working in sectors where direct contractor engagement is common should take legal advice on their specific arrangements.
Q10: Are MSPs using JSL as leverage to negotiate more aggressive commercial terms with umbrella providers?
This question reflects a genuine concern raised by several panellists. As Simon Bliss noted, compliance decisions should be driven by the quality and integrity of the umbrella provider, not by financial considerations such as rebates and credit terms. The panel strongly cautioned against using JSL as a negotiating tool to extract more favourable commercial terms. An umbrella operating on unsustainably tight margins is more likely to cut corners, more likely to underpay tax, and more likely to become insolvent—all of which increase, rather than decrease, the agency’s JSL exposure. PSL decisions should be made on compliance merit, financial stability, and quality of service.
Q11: Can you insure against a tax liability?
The short answer, as several panellists confirmed, is that you cannot traditionally insure against a tax liability in the same way you might insure against other business risks. However, emerging products—such as the Orbio insurance product linked to SafeRec certification—are designed to insure against the financial consequences of an umbrella company’s failure, including insolvency. These products insure the compliance process and the evidence generated by it, rather than directly insuring the tax debt itself. The key for agencies is to review the precise policy wording to understand what is covered, what exclusions apply, and whether insolvency is within scope.
Q12: If the unpaid tax debt is large enough to take down the umbrella, it will probably take down the recruiter. So who pays HMRC?
This question highlights the most sobering reality of JSL. If a significant underpayment is identified, the umbrella may not have the resources to pay. If the liability then falls on the agency and the agency cannot absorb it either, the debt does not simply disappear. HMRC will pursue every available route to recover—including, potentially, looking up the supply chain to the end client where no agency insulates them. In the worst case, both the umbrella and the agency could face insolvency. This is precisely why prevention through rigorous ongoing compliance monitoring is so critical. Waiting for a problem to arise and then hoping contractual indemnities or insurance will cover it is not a viable strategy. The goal must be to ensure underpayments never occur in the first place.
Q13: Should agencies be paying HMRC directly rather than leaving it to umbrella companies?
The panel discussed this option but considered it impractical for most agencies. The administrative burden of calculating payroll, processing RTI submissions, and managing tax payments would be significant, and the agency would still need the umbrella to provide employment contracts and manage employment law obligations. As Sebastien Sauca pointed out, paying the tax directly addresses only the final step of the five-step compliance process—it does nothing about whether the payroll was calculated correctly in the first place. The panel saw very little traction for this approach in the market and recommended that agencies instead focus on working with properly accredited umbrella providers and implementing robust monitoring processes.
Q14: Will the minimum umbrella pay rate be the same across all umbrella companies?
The Employment Rights Act reforms are expected to address the issue of transparency in contractor pay, including clearer breakdowns of how umbrella margins are applied. However, the precise pay rate will still depend on the gross charge rate agreed between the agency and the end client, minus the umbrella’s margin and statutory deductions (PAYE, employee NIC, employer NIC, Apprenticeship Levy, and any applicable pension contributions). Compliant umbrella companies will all apply the same statutory deduction rates, so the net pay to the contractor should be broadly comparable. If a contractor is receiving significantly more net pay through one umbrella than another, that is a red flag that the higher-paying umbrella may not be deducting or paying the correct taxes.
Q15: Can a separate limited company arrangement with the umbrella reduce liability?
Setting up a separate limited company to work alongside an umbrella provider does not eliminate JSL risk. The legislation follows the supply chain regardless of the corporate structure of the parties involved. If the entity operating as an umbrella (by whatever corporate form) fails to pay the correct tax, the liability attaches to the relevant party above it in the chain. Agencies contemplating structural arrangements to manage risk should take specialist legal and tax advice, but should not assume that creating additional corporate layers will provide a shield against JSL.
Q16: Will services that use umbrella companies but are not recruitment agencies also be targeted?
The legislation is drafted to apply wherever there is a supply chain involving an umbrella company and a worker. The definition is not limited to traditional recruitment agencies. End clients that engage workers directly through an umbrella—without a recruitment agency in the middle—can be the “relevant party” for JSL purposes. This means service companies, facilities management businesses, and other non-recruitment entities that place workers via umbrellas should also be aware of their potential exposure. Where these organisations use FCSA or SafeRec accredited umbrellas, they are better positioned, but they are not exempt from the legislation by virtue of not being recruitment agencies.
Q17: What about the applicability of TUPE if agencies take payroll in-house or shorten their PSL?
As Paul Chamberlain highlighted during the roundtable, this is a significant and under-discussed issue. If an agency brings payroll in-house, it is changing the provider of the payroll service, which can constitute a “service provision change” under TUPE. Workers previously employed by the umbrella would transfer to the agency on their existing terms and conditions, with continuous service intact. The same applies when shortening a PSL: workers moving from one umbrella to another can trigger a TUPE transfer between the two umbrella companies. Agencies must factor TUPE obligations into their transition planning and should take legal advice before making structural changes to their umbrella supply chain.
Q18: What was the name of the insurance product linked with SafeRec?
The insurance product discussed during the roundtable is provided by Orbio Insurance. Further information can be found at orbioinsurance.com.
4. Your 60-Day Action Plan
Based on the expert panel’s recommendations, every recruitment agency should be working through the following steps between now and April 2026:
Week 1–2: Audit your supply chain
Identify every umbrella company you currently work with. Check accreditation status (SafeRec, FCSA). Flag any mini-umbrella arrangements.
Week 1–2: Exit non-compliant providers
Remove any mini-umbrella companies or unaccredited providers from your PSL immediately. Do not wait.
Week 3–4: Update contracts
Review and update all umbrella agreements to include JSL-specific provisions: compliance obligations, audit rights, evidence requirements, and termination triggers.
Week 3–4: Implement monitoring
Establish a monthly process for obtaining and reviewing evidence of tax payments from each umbrella provider. Consider platforms like SafeRec that automate this.
Week 5–6: Explore insurance
Investigate JSL insurance products. Review policy wording carefully. Understand exclusions and insolvency coverage.
Week 5–6: Consider TUPE implications
If you are planning to shorten your PSL or bring payroll in-house, take legal advice on TUPE obligations before making changes.
Week 7–8: Educate your team
Ensure your sales team, compliance staff, and senior management all understand JSL and can articulate your compliance position to clients.
Week 7–8: Turn compliance into a sales advantage
Prepare client-facing materials that demonstrate your JSL preparedness. Use compliance as a differentiator in pitches and tenders.
5. Conclusion
Joint and Several Liability is not a distant possibility—it is a confirmed legislative change arriving in April 2026. The panel’s unanimous view is that agencies which act now will not only protect themselves from potentially business-ending liabilities, but will position themselves to win business from clients who are increasingly demanding supply chain transparency and compliance rigour.
The agencies most at risk are those doing nothing. The 80% who don’t yet know about JSL. The agencies still using mini-umbrella arrangements. The agencies relying on contractual indemnities that won’t stand up when HMRC comes calling. For those agencies, the message from every panellist was the same: act now.
For the agencies that do get on the front foot—that audit their supply chains, work with accredited providers, implement robust monitoring, and turn compliance into a commercial advantage—2026 represents not a threat, but an opportunity.
“The good guys in our industry have nothing to fear from these new HMRC rules. It’s the bad guys—the non-compliant payroll providers—who will be running for the hills. At AGPayroll, we’re proud to lead the way in protecting our clients and partners, whatever changes lie ahead.”
— Chris Fahey, Owner, AGPayroll
Ready to Protect Your Business?
AGPayroll is SafeRec certified, FCSA accredited, and ready to help you navigate JSL with confidence.
Call us: 0333 034 1472
Email: customercare@agpayroll.co.uk
Visit: agpayroll.co.uk
