Joint and Several Liability: What Recruiters Need to Know
What Recruitment Agencies Must Know About Joint and Several Liability in 2026
From April 2026, recruitment agencies, MSPs, and end clients become liable for unpaid PAYE and NICs when using umbrella companies. This legislative change is significant: agencies will lose the shield of plausible deniability, and HMRC will enforce upstream recovery of unpaid taxes.If you are in the recruitment supply chain, especially where umbrella companies engage workers, you must understand this new landscape. This guide outlines the new rules, the practical risks involved, and concrete steps you should take ahead of implementation.
Why the Law Is Changing
HMRC's policy is clear: too many umbrella companies avoid or underpay tax, harming both workers and compliant agencies. The new law assigns responsibility to those who control the supply chain, aiming to:- Recover hundreds of millions in lost PAYE and NICs annually
- Prevent workers from facing surprise tax bills
- Level the playing field for compliant firms
- Applies regardless of intent: Even where agencies have performed due diligence, liability still attaches if taxes go unpaid.
- Focus on contracts: If you are within the contractual chain between an umbrella and the client, you are exposed.
- No cover from ignorance: HMRC will not accept claims of unawareness or good faith as a defense.
- Direct contract with umbrella: The client is liable
- Intermediary between umbrella and client: The first UK-based agency (or MSP) becomes liable
- Intermediary is offshore or connected: The client is again responsible
- No direct employment exists (sham umbrellas): Parties in chain are still liable
- Worker-owned umbrellas used for avoidance: Law applies as if umbrella arrangement is genuine
- Worker supplies services to a UK client
- Umbrella (not worker-owned) is paid by the agency/MSP or client
- There is a contractual relationship providing these services
- IR35/deemed employment scenarios
- Limited liability partnership exceptions
- Workers with a genuine material interest (5%+) in the umbrella, unless for avoidance
- Fake employers without substantive employment contracts or payroll
- Worker-owned umbrellas structured for dividend or loan extraction
- Chains that obscure a genuine employment relationship with the worker
- HMRC can issue Regulation 80 determinations for unpaid PAYE/NICs, demanding payment from agencies/clients.
- Liabilities can arise months after the relevant payments.
- Due diligence, audits, or accreditations do not shield you; intent is not a defense.
- Reputational damage: Being named in enforcement actions harms trust with clients, frameworks, and regulators.
- Review all umbrella company arrangements in your supply chain
- Engage with legal and compliance experts
- Communicate transparently with clients about changes and responsibilities
- [HMRC Policy Paper, July 2025](https://www.gov.uk/government/publications...) (official guidance)
- [Finance Bill 2025: Draft Legislation](https://www.gov.uk/government/publications...) (full text sections 61Y–61Z1)
- [ITEPA 2003 (as amended)](https://www.legislation.gov.uk/ukpga/2003/1/contents)
“Making those who can control labour supply chains legally responsible for ensuring PAYE is properly accounted for will improve compliance in the market.”
— HMRC Policy Paper, July 2025
What Will the New Law Do?
From 6 April 2026, under new amendments to ITEPA 2003 (sections 61Y to 61Z1), any unpaid employee taxes in an umbrella arrangement can be recovered from the agency, a managed service provider, or the end client—not just the noncompliant umbrella company.Key features of the law:
Table: When Joint and Several Liability Applies
| Scenario | Agency/MSP/Client Liable? |
|---|---|
| Umbrella company fails to pay PAYE/NICs | Yes |
| Agency unaware of umbrella’s failure | Yes |
| IR35 applies to worker | No |
| Worker owns over 5% of umbrella | No* |
| Sham/fake umbrellas in supply chain | Yes |
| Non-UK intermediary in chain | Client (UK) liable |
Who Is at Risk?
The legislation carefully defines the "relevant party" in various supply chain setups:What Arrangements Are Caught?
The law is written broadly. What matters is the presence of a chain:The arrangement could involve any number of intermediaries, UK or international. As long as a UK party is present, liability follows.
Exclusions:
What About Sham and Purported Umbrella Companies?
HMRC targets structures designed to mimic compliant umbrellas but are fundamentally illegitimate. The law specifically addresses:If HMRC deems the arrangement an umbrella for tax purposes, liability still applies regardless of appearances.
Legal, Financial, and Reputational Risks
The consequences for recruitment firms are real and significant:“Liability will not be dependent on culpability or negligence... Those who control the supply chain must ensure PAYE is accounted for.”
What You Should Do Now
Proactive steps for recruiters and agencies include:1. Map your supply chain – identify all umbrella and intermediary relationships
2. Audit contracts to ensure clarity and compliance
3. Vet umbrella companies rigorously – look beyond accreditation; research ownership and payroll practices
4. Update policies and staff training regarding new liability standards
5. Establish ongoing monitoring of supply chain payroll activity
Don’t wait until 2026. Act now to reduce your risk exposure.
Your Next Steps
The upcoming rule changes reflect a new era for temporary staffing compliance. Understanding and adapting now ensures resilience and protects your business from the significant financial and reputational risks of the joint and several liability regime.
Key Sources and Documentation
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For in-depth supply chain mapping and umbrella due diligence solutions, reach out to specialised compliance providers. Early action is essential.
