With the recently announced Joint and Several Liability (JSL) legislation gaining traction, the industry has erupted with claims that contractors will now face “no more tax risk.” At first glance this sounds positive. But beneath the surface, JSL may actually fuel riskier behaviour across the umbrella and recruitment sector — not eliminate it.

Below we break down four major concerns the industry needs to take seriously.

1. Removing Tax Risk From Contractors Doesn’t Remove Risk From the System

One of the loudest claims following the JSL announcement is that contractors will no longer be personally liable for unpaid tax if their umbrella is found to be non-compliant. That is technically correct — but it creates a perverse incentive.

If contractors know they cannot be held financially responsible, there is nothing stopping them from choosing umbrellas offering suspiciously high net pay, “enhanced retention”, or disguised remuneration schemes.

Why? Because:

• They keep more take-home pay

• They face no personal penalty under JSL

• The risk is shifted entirely onto agencies and end clients

This is likely to increase demand for tax-avoidance umbrellas, not eliminate them. Contractors who previously avoided risk because they feared HMRC action will now have far less reason to be cautious.

In effect, removing personal liability may dramatically boost demand for the very schemes JSL is trying to stamp out.

2. Commission-Driven Referrals Are Still Rampant — And JSL Doesn’t Stop Them

It is widely acknowledged in the industry that some agency consultants receive commissions from umbrella companies. Deals of up to 8% of the contractor’s weekly invoice have been reported.

If the JSL rules shift liability to agencies, what stops some agencies — particularly small or short-lived ones — from continuing to partner with known tax-avoidance umbrellas for financial gain?

Nothing.

And here is the uncomfortable truth:

If umbrellas can shut down and reopen under new names, agencies can do the same.

JSL does not prevent:

• An agency from operating recklessly for profit

• Closing as soon as HMRC starts issuing letters

• Reopening under a new brand with the same consultants

• Re-establishing the same deals with the same umbrella owners or sales brokers

The industry already knows that certain umbrellas are serial phoenix companies. Agencies can easily copy this playbook if they are earning commission from non-compliant umbrellas.

JSL could unintentionally encourage a new wave of agency phoenixing.

3. PSL Restrictions Will Tighten — But That’s a Legal and Practical Minefield

Many agencies will react to JSL by condensing their PSLs even further, trying to reduce their exposure. Some will go further and make their PSLs mandatory.

This introduces several major problems.

A. It breaches the Conduct Regulations

As outlined in Regulation 5 of the Conduct Regulations, an agency cannot make work conditional on a contractor using a particular financial service — including an umbrella.

A Preferred Supplier List is exactly what the name says:

Preferred — not compulsory.

Any agency forcing contractors to use a PSL umbrella is breaching the law.

B. PSLs give a false sense of security

Agencies cannot know with certainty that their PSL umbrellas are not operating or enabling tax avoidance. Many umbrellas with respected accreditations have still been exposed later.

Accreditation bodies are not a guarantee of safety:

• Professional Passport has publicly stated that its approval does not protect against JSL risk Source: https://www.professionalpassport.com/Hot-Topics/Hot-topics/Dont-Take-Our-Word-For-It

• FCSA has historically certified umbrellas that were later connected to non-compliant practices

So if agencies rely on accreditation alone, they may still be liable — and falsely confident.

C. Contractors forget they have a legal right to choose

Most contractors are told “the PSL is mandatory” and simply accept it.

But legally:

• Contractors do not have to use a PSL umbrella

• Agencies cannot penalise a contractor for choosing their own provider

• PSL restrictions, when enforced, are unlawful

This misunderstanding is widespread and will become a huge issue once JSL takes effect.

4. JSL Won’t Stop the Industry — It Will Simply Evolve Around It

Every time HMRC introduces new legislation, the market adapts. IR35, MSC rules, Off-Payroll reforms — all resulted in temporary disruption followed by new tax-efficient schemes.

JSL will be no different.

There is too much money circulating in:

• umbrella referral commissions

• margin stacking

• offshore structures

• disguised remuneration

• consultancy fees

• sales broker kickbacks

for the market to simply stop.

Instead:

• Some umbrellas will rebrand

• Some agencies will rebrand

• New loopholes will appear

• Contractors will still favour high pay retention

• Non-compliant models will continue until HMRC catches up

JSL will cause turbulence — but it will not clean up the industry. If anything, it may accelerate the creation of more sophisticated avoidance schemes.

Conclusion: JSL Is Not a Solution — It’s an Amplifier

JSL legislation is being marketed as the end of contractor tax risk. But the reality is far more complicated:

• Contractors may now be less cautious about risky umbrellas

• Agencies could continue taking commission-based referrals

• Phoenixing of both umbrellas and agencies may increase

• PSL restrictions could illegally tighten

• Accreditation bodies cannot guarantee JSL safety

• And the industry will continue to evolve around new rules, not obey them

The real fix requires transparency, enforcement, and accountability across every part of the supply chain — not just shifting liability.

Until then, contractors must remember: They have the legal right to choose their own umbrella. And agencies must recognise that no PSL or accreditation can protect them from the risks created by their own commercial incentives.