HM Treasury to Introduce Joint & Several Liability for Umbrella Company Tax Compliance

Overview

HM Treasury and HMRC have indicated that, beginning April 2026, tax compliance in the umbrella employment sector will shift under a “joint and several liability” (JSL) regime. Under this change, if an umbrella company under-deducts tax, liability won’t only rest with it. Instead, recruitment agencies—and if no agency is involved, the end-client—will be equally accountable.

Lead Agency Accountability

Responsibility will be primarily borne by the “lead agency,” defined as the agency directly contracted with the end-client. This ensures accountability throughout the supply chain and marks a clear tightening of regulation around umbrella arrangements.

Industry and Expert Responses

Compliance specialists and umbrella industry leaders have cautiously welcomed the move:

• Seb Maley (CEO, Qdos) noted a “collective sigh of relief” among both umbrellas and recruiters, as agencies will no longer have to operate PAYE directly—but they must now carefully vet compliance in their supply chains.
• Crawford Temple of Professional Passport emphasised agencies “will have no excuses” and must understand their newly elevated liabilities.
• Rebecca Seeley Harris (Re:legal Consulting), confirming JSL will be “absolute” with no statutory defense, expects draft legislation in July, followed by regulatory consultation in the autumn.
• The Freelancer & Contractor Services Association and FCSA’s Chris Bryce support the policy, appreciating HMRC and HM Treasury’s engagement.

Implementation Timeline & Legal Basis

The government plans to insert a new chapter in the Income Tax (Earnings and Pensions) Act (ITEPA)—distinct from Section 44—explicitly outlining JSL. A “statutory transfer of debt” mechanism may further streamline enforcement, allowing HMRC to collect directly and swiftly. Draft text is expected mid‑July, with accompanying full guidance in the autumn.

Next Steps

• July: Draft legislation released (“L-Day”), defining precise obligations and liabilities.
• Autumn: Department for Business & Trade publishes regulatory proposals—likely introducing umbrella licensing under the Fair Work Agency.
• April 2026: New compliance rules take effect, making agencies and clients equally enforceable for umbrella compliance.

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Why this matters:

• Agencies and clients must enhance due diligence—identifying rogue umbrella companies is now a legal necessity.
• Umbrella providers can leverage this reform as a competitive advantage—compliant firms will be favoured by cautious recruiters.
• Contractors should continue verifying that PAYE deductions and National Insurance are correctly applied, as mistake liability still exists under JSL.