Offshore Agencies and JSL Risk
Could distance dilute liability?
As the umbrella joint and several liability rules bed in, a new question is surfacing in recruitment circles: if a labour supply agency is non-UK resident, HMRC guidance suggests unpaid PAYE liability may pass directly to the end client. That possibility has prompted talk of placing the agency outside the UK to sidestep the regime. The idea sounds simple. The reality is more complex, and potentially much riskier than it first appears.
Offshore agencies under JSL scrutiny
Mechanics without a UK footprint
In theory, an offshore agency could be incorporated in a foreign jurisdiction, appoint directors and shareholders who are tax resident abroad, and ensure commercial decisions are taken outside the UK. Banking, contract negotiation, and board meetings would occur offshore, with UK presence limited to relationships conducted at arm’s length. A new vehicle with no UK trading history could then contract with UK end clients via umbrella companies, asserting non-UK residence while selling recruitment services into Britain.
Such a structure would aim to preserve a clean separation between central management and control and any UK activity. It would seek to avoid creating a UK permanent establishment by keeping sales, negotiation, and authority to conclude contracts offshore. The umbrella would handle UK payroll, while the agency positions itself as a foreign service provider supplying candidates to UK clients.
Why proponents see merit
Supporters argue that offshore residence could reduce exposure to umbrella non-compliance, help preserve existing agency commission models, and introduce perceived regulatory distance from PAYE responsibility. In a market where referral-driven umbrella relationships persist, limiting downside risk under the new rules has clear commercial appeal. Some also believe end clients may accept offshore suppliers if the talent pipeline remains reliable and costs are stable.
The attraction is clarity of risk allocation: the agency is offshore, the umbrella runs UK payroll, and the client engages on standard terms.
But the clarity can be illusory when UK tax tests and commercial realities bite.
Where the approach falters
UK tax residence turns heavily on central management and control. If strategic decisions are made in the UK, or if UK-based personnel effectively direct the business, a company can be UK resident despite overseas incorporation. Equally, an active UK sales presence risks creating a permanent establishment, exposing UK profits to corporation tax and opening the door to enforcement. Existing anti-avoidance powers allow HMRC to challenge contrived arrangements, especially where form diverges from substance.
Commercial dynamics may prove even more decisive. Once end clients recognise that a non-UK agency could push JSL liability directly onto them if an umbrella fails on PAYE, procurement teams may avoid such relationships altogether. Many large clients already maintain strict supplier onboarding policies. An offshore agency with no UK history may be viewed as higher risk, lengthening sales cycles or closing doors entirely.
Could anyone get away with it?
Edge cases exist. A genuinely offshore start-up with no UK staff, no UK decision-making, and carefully managed cross-border contracting might avoid UK residence and permanent establishment. Its operations could be substantively conducted in Ireland, the UAE, or elsewhere, with UK demand serviced remotely and umbrellas providing domestic payroll compliance. On paper, that might meet the technical requirements.
However, practical hurdles remain. HMRC enforcement typically focuses on substance over form, and the agency’s behaviour across email trails, meeting locations, and authority matrices often tells the real story. More importantly, clients are likely to be the first barrier: if the structure shifts JSL risk onto them, many will insist on UK-resident agencies or additional indemnities and warranties, eroding any perceived advantage. Insurance markets may echo that caution through exclusions or higher premiums.
The wider policy context
JSL aims to remove deniability across labour supply chains and force responsibility upstream. Offshore agency models appear to test the edges of that intent, but they do not change the end client’s appetite for predictable compliance. Even if technically viable in narrow circumstances, reliance on offshore status looks more like a short-term workaround than a durable strategy for the UK market. As scrutiny rises, opaque umbrella-driven practices are likely to contract rather than expand.
Contractor News view
Offshore agency structures may satisfy residence tests in limited, genuinely foreign-operated scenarios, but the commercial and enforcement headwinds are significant. Client procurement standards, insurance constraints, and HMRC’s substance-first approach mean few agencies will find this a dependable path. In the context of JSL’s policy objective, the market seems set to reward transparent supply chains and clearer accountability rather than distance through jurisdictional structuring.
