JSL Changes - Why Clients Could Still Be Liable for Agency PAYE Debts - Even Without an Umbrella Company
How The Proposed Rules Could Class Agencies As Umbrella Companies — And Put Clients On The Hook For Unpaid PAYE
The government’s planned joint and several liability (JSL) rules are sparking plenty of debate. One belief I keep hearing is:“If we hire agency workers directly from a recruitment agency — without an umbrella company — the new rules won’t make us liable.”
That might sound reassuring, but it’s a dangerous assumption. Under the way the legislation is written, many agencies could be treated as umbrella companies themselves. If that happens, the client could be jointly liable for any unpaid PAYE — even when no separate umbrella is in the chain.
Why This Matters
The proposed rules say an umbrella company is any business that:- Supplies workers, and
- Employs those workers.
- You’re either employed for tax purposes, or you’re not.
- They can’t send a substitute.
- They work under client or agency direction.
- They’re not operating as independent businesses.
- Insist that an independent umbrella company (not owned by the agency) is part of the chain.
There’s an exception for workers who are only “employed” because of special tax rules known as Chapter 7 (often called “false self-employment” rules).
But here’s the key point: If the worker is already employed for tax purposes — without using Chapter 7 — the agency becomes an umbrella company for JSL purposes. That’s where the client’s liability risk comes in.
Employment for Tax Purposes — Not the Same as Employment Law
A lot of the confusion comes from mixing up employment law and employment tax rules.Under employment law, there are several categories (employee, worker, hybrid, self-employed), each with different rights.
Under tax rules, it’s simpler:
There’s also Chapter 7, which can deem someone to be employed for tax purposes even if they don’t meet the normal test.
Why Most Agency Workers Count as Employed for Tax
The tax test for employment looks for three things:1. The worker must do the work personally (no real substitution right).
2. There’s some level of control over how the work is done.
3. Nothing suggests they’re running their own business.
Most agency workers tick all three boxes:
That means they’re already “employed for tax purposes” — no Chapter 7 needed. Once that’s true, the agency is classed as an umbrella company under the new rules, and the client is caught in the JSL net.
What This Could Look Like in Practice
If the law passes as written, common labour supply chains could look like this:| Supply Chain | Who’s Liable Under JSL |
|---|---|
| Client → Agency | Client & Agency |
| Client → Agency → Agency’s own umbrella | Client, Agency & Umbrella |
| Client → Agency → Independent umbrella | Agency & Umbrella only |
| Client → MSP → Agency | MSP & Agency only |
| Client → MSP → Agency → Umbrella | MSP & Umbrella only |
How Clients Can Reduce Risk
If you want to avoid JSL exposure, the most reliable approach is to:That way, the client isn’t liable — the risk sits between the agency and umbrella.
From a policy point of view, this also supports the government’s goal of cleaner, more transparent supply chains.
Bottom line: “No umbrella” does not automatically mean “no JSL.” In many cases, the agency itself will be treated as an umbrella company, and the client will share liability. The only safe route may be to bring in an independent umbrella.
