Joint and Several Liability – Preparing for Umbrella Reforms

The publication of the Finance Bill late last year marked a decisive moment for the regulation of umbrella company arrangements. What now appears to be the final form of the joint & several liability (JSL) umbrella company legislation introduces significant changes, with reforms scheduled to take effect from April 2026. For agencies, end clients and labour providers alike, the focus must now shift from monitoring legislative development to active preparation and risk management.

At the heart of the reforms is the introduction of JSL within labour supply chains. In simple terms, where PAYE or National Insurance liabilities are not correctly accounted for by an umbrella company, responsibility for payment of PAYE and NICs sits jointly with agencies and, in some cases, end clients. The intention is clear: to drive greater accountability and due diligence across the market.

Understanding where you sit in the supply chain

The legislation is prescriptive in identifying which parties may be held jointly liable, but this depends entirely on where an organisation sits in the contractual chain. This will not be uniform. An agency or client may occupy different positions depending on the structure of a particular engagement, the suppliers involved or the nature of the labour being provided.

Why a “One Size Fits All” Approach Fails

As a result, a “one size fits all” approach will not work. Organisations must first map and understand their supply chains in detail before they can accurately assess exposure under the new regime. Only then can proportionate checks, contractual protections and compliance processes be implemented.

A wide definition of ‘umbrella company’

A key feature of the legislation is the breadth of the definition of an umbrella company. While traditional umbrella models are clearly within scope, the drafting deliberately extends much further. Certain suppliers that would not ordinarily be described as umbrella companies may nonetheless be caught by the definition, bringing unexpected arrangements within the legislation’s reach.

Limits of HMRC Draft Guidance and Enforcement Expectations

HMRC’s draft guidance to date has taken a relatively high-level approach and, in places, oversimplifies what is now a complex legal framework. It is widely anticipated that the legislation itself will act as the primary enforcement tool, with risk being driven down the supply chain through commercial pressure and self-policing, alongside direct HMRC enforcement.

Supply chain transparency as a first step

Against this backdrop, the immediate priority for organisations is gaining clarity over their supply chains. Understanding who supplies labour, how workers are engaged and where tax responsibility truly sits is fundamental. This process enables organisations to identify higher-risk arrangements and engage with suppliers to address issues before April 2026.

Transparency as a Commercial and Regulatory Expectation

Transparency is not only a defensive measure; it is increasingly becoming a commercial expectation. Clients and agencies that can demonstrate a clear, well-governed approach to labour supply will be better positioned to respond to regulatory scrutiny and market pressure.

The challenge of ‘purported umbrella companies’

One of the most technically challenging aspects of the legislation concerns so-called “purported umbrella companies”. These provisions are designed as targeted anti-avoidance measures and have evolved through the drafting process of the legislation.

The Legal Test and Its Subjectivity

Broadly, the rules seek to capture arrangements where, although a business presents itself (or is perceived) as the worker’s employer, it is not in fact the employer in law. The test relies on a combination of reasonable suppositions and assumptions, impressions given to participants in the arrangement, and hypothetical outcomes if employment were in place.

Joint and Several Liability Risks

Where these conditions are met, the joint and several liability provisions can apply, potentially drawing unsuspecting parties into tax risk. The inherent subjectivity of concepts such as “reasonable to suppose” adds a further layer of complexity for organisations assessing their exposure.

Interaction with IR35, Section 44 and Additional Scenarios

The final legislation also introduces additional targeted scenarios, including certain self-employed arrangements and cases where individuals hold a material interest in the purported umbrella company. The result of this is that Section 44 ITEPA, for the self-employed and IR35 for those engaged with a limited company will not be HMRC’s only enforcement tools from April 2026. The “purported umbrella company” provisions will now also be at HMRC’s disposal. These provisions reinforce the need for careful, engagement-specific analysis rather than reliance on labels or assumptions.

Collaboration and preparation

With less than 4 months until implementation, the message is clear: preparation must begin now. Umbrella companies, agencies and end clients need to work collaboratively to understand roles, responsibilities and the practical application of the legislation across different engagement models. Early action will allow time to address weaknesses, renegotiate contractual terms where necessary and put robust governance frameworks in place.

Strengthening Contracts and Governance Frameworks

Chartergate Legal Services has extensive experience advising across the labour supply chain on employment status, tax risk, contractual structures and regulatory compliance, and is uniquely well placed to guide clients through the practical and legal challenges posed by the new umbrella company legislation.

Contact our team now, for more information on how you can protect your business during these changeable times.

Disclaimer: Chartergate Legal Services Ltd has drafted this update to provide you with a general overview of the relevant law and developments at the date of sending only. This update is provided as a general overview and should be taken as such. It is not a substitute for professional advice that is specific to your circumstances and should not be relied upon as such.