Joint and Several Liability: no hiding place for non-compliance

From April 2026, Joint and Several Liability (JSL) will be introduced as the government’s enforcement mechanism for the new umbrella company legislation. For recruitment agencies, this represents a major shift in accountability – one that can’t be ignored.

What is Joint and Several Liability? (quick-fire explanation!)

Put simply, JSL means that if a party on the supply chain fails to meet its tax obligations, others in that chain can also be held responsible. In the context of umbrella company regulation, HMRC will have the power to pursue unpaid PAYE tax, National Insurance, or even liabilities arising from disguised remuneration schemes, not just from the umbrella itself, but from the agency and, in some cases, the end client. 

How will it work in practice?

Under the new rules:

• The umbrella company remains the employer and will continue to hold the Employer’s Reference Number (ERN)
  
• If there is a tax shortfall, the agency at the top of the supply chain (or the end client if no agency is involved) can be held accountable.
• This is a strict liability regime – there is no statutory excuse if your supply chain partner has cut corners.

In practice, this means that if an umbrella provider fails to process PAYE correctly, or makes unlawful deductions, the recruitment agency would be on the hook for the liability. No statutory excuse means that HMRC will not accept ignorance as a defence. It is also highly worth noting that if there is no umbrella company in the supply chain, then the agency and end client become joint and severally liable.

What this means for agencies

This legislation draws a line in the sand for accountability. It forces agencies to look closely at every corner of their supply chains. The financial and reputational cost of partnering with a non-compliant umbrella company could be devastating.

With some preparation, agencies can be in a good position to meet this head-on with minimal disruption. April 2026 will roll around before you know it, so we recommend the following: 

• Tighten PSLs to include only trusted, compliant umbrella partners.
• Ensure your suppliers are in a strong financial position.
• Use technology and tools that provide real-time visibility and transparency. Discover Stride 
• Act now, don’t leave it to the last minute!

A positive step for contractors 

For workers, this change should be welcomed. It will drive rogue operators out of the market, ensuring contractors are paid correctly, with proper holiday accrual and full employment rights.

Some commentators have suggested that this could narrow contractors’ choice of umbrella companies or limit their freedom, but in reality it only affects those currently engaged with non-compliant schemes, including those that artificially inflate take-home pay while exposing workers to financial risk.

For contractors choosing reputable, compliant umbrellas, the new rules simply mean greater protection and peace of mind.  

Final thoughts

Umbrella regulation, using Joint and Several Liability, is designed to level the playing field, remove the commercial advantage of non-compliant umbrellas and ensure tax is paid where it’s due. JSL means there is no hiding place for non-compliance – due diligence is no longer optional – it’s survival!

Having a compliant umbrella partner like Liquid Friday in your supply chain is one of the most effective ways to de-risk. Otherwise, recruitment agencies and end clients could find themselves jointly and severally liable for unpaid tax and other compliance failures – a risk that could prove extremely costly.

Need some help?

We know there’s a lot to take in right now. If you have questions about Joint and Several Liability, umbrella regulation, or anything else, our expert team is here to help. If you’re already an agency client, reach out to your dedicated Liquid Friday Account Manager. Otherwise, simply click below and get in touch – we’ll be happy to guide you.

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