The introduction of Joint and Several Liability (JSL) rules from April 2026 represents a significant regulatory shift in how tax compliance is enforced across the UK labour supply chain. For contractors operating through umbrella companies, the new framework changes where financial risk sits if PAYE, National Insurance Contributions (NICs), or Apprenticeship Levy payments are not correctly made to HMRC.
Historically, liability for tax non-compliance sat primarily with the umbrella company itself, but under the new rules, that risk now extends to recruitment agencies and, in certain cases, end clients. This change is designed to tackle widespread non-compliance within the umbrella market and to prevent tax avoidance schemes from operating within labour supply chains. For construction contractors, agencies, and principal contractors, understanding how liability is now allocated is critical, particularly as supply chain due diligence and compliance checks become central to commercial and operational decisions.
While umbrella companies have traditionally been responsible for paying PAYE and National Insurance, evidence shows that from April 2026, Joint Liability rules shift the financial risk of non-compliance to recruitment agencies and end clients, fundamentally changing how labour supply chains are managed in the UK.
While umbrella companies have traditionally been responsible for paying PAYE and National Insurance, evidence shows that from April 2026, Joint Liability rules shift the financial risk of non-compliance to recruitment agencies and end clients, fundamentally changing how labour supply chains are managed in the UK.
Understanding Joint and Several Liability in 2026
The Joint and Several Liability (JSL) rules introduced in April 2026 form part of a wider HMRC strategy to eliminate tax non-compliance in the umbrella company sector by holding multiple parties in the labour supply chain legally responsible for unpaid tax.
The Joint and Several Liability (JSL) rules introduced in April 2026 form part of a wider HMRC strategy to eliminate tax non-compliance in the umbrella company sector by holding multiple parties in the labour supply chain legally responsible for unpaid tax.
Under this framework, if an umbrella company fails to account for PAYE income tax, National Insurance Contributions, or the Apprenticeship Levy, HMRC can recover the outstanding amounts from other parties involved in the supply chain, including recruitment agencies or, in some cases, the end client.
The rules operate on a strict liability basis, meaning that responsibility can be transferred regardless of whether the agency or client carried out due diligence. The legislation, introduced through a new Chapter within the Income Tax (Earnings and Pensions) Act 2003, effectively positions agencies and clients as compliance gatekeepers, requiring them to ensure that any umbrella companies they engage operate fully within UK tax law.
1. What Are the Joint Liability Rules in 2026?
From 6 April 2026, new Joint and Several Liability rules apply to the use of umbrella companies across the UK labour market.
The rules allow HMRC to recover unpaid tax liabilities from parties other than the umbrella company itself if tax obligations are not met. These include:
The legislation is introduced through a new chapter within the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), formalising the legal framework for shifting liability within labour supply chains.
The primary objective is to prevent tax avoidance and non-compliance, particularly where umbrella companies fail to account for the correct deductions.
2. How Liability Moves Through the Supply Chain
Under the new rules, liability does not remain with the umbrella company. Instead, it can move up the labour supply chain depending on the contractual structure.
In most cases, the first party held liable will be the recruitment agency that contracts with the end client. If the umbrella company fails to pay the correct tax, HMRC can recover the debt directly from that agency.
Where no agency is involved, liability shifts directly to the end client, making them jointly responsible alongside the umbrella company.
In situations where there is a connection between the agency and the umbrella company, such as shared ownership or control, HMRC may bypass the agency entirely and pursue the end client directly. This is designed to prevent the creation of structures intended to avoid liability.
This cascading liability model ensures that there is always a financially viable party in the chain for HMRC to pursue.
1. What Are the Joint Liability Rules in 2026?
From 6 April 2026, new Joint and Several Liability rules apply to the use of umbrella companies across the UK labour market.
The rules allow HMRC to recover unpaid tax liabilities from parties other than the umbrella company itself if tax obligations are not met. These include:
- PAYE income tax
- National Insurance Contributions (NICs)
- Apprenticeship Levy
The legislation is introduced through a new chapter within the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), formalising the legal framework for shifting liability within labour supply chains.
The primary objective is to prevent tax avoidance and non-compliance, particularly where umbrella companies fail to account for the correct deductions.
2. How Liability Moves Through the Supply Chain
Under the new rules, liability does not remain with the umbrella company. Instead, it can move up the labour supply chain depending on the contractual structure.
In most cases, the first party held liable will be the recruitment agency that contracts with the end client. If the umbrella company fails to pay the correct tax, HMRC can recover the debt directly from that agency.
Where no agency is involved, liability shifts directly to the end client, making them jointly responsible alongside the umbrella company.
In situations where there is a connection between the agency and the umbrella company, such as shared ownership or control, HMRC may bypass the agency entirely and pursue the end client directly. This is designed to prevent the creation of structures intended to avoid liability.
This cascading liability model ensures that there is always a financially viable party in the chain for HMRC to pursue.
The primary objective is to prevent tax avoidance and non-compliance, particularly where umbrella companies fail to account for the correct deductions. Detailed guidance on these changes was outlined in the government’s policy paper on tackling non-compliance in the umbrella company market.
3. What This Means for Contractors
For contractors working through umbrella companies, the new rules generally reduce personal tax risk.
Previously, where an umbrella company operated non-compliant schemes, workers could face unexpected tax liabilities if HMRC challenged the arrangement. Under the 2026 rules, the financial liability is shifted away from individual workers and onto businesses within the supply chain.
However, this does not mean contractors are unaffected. The changes are expected to alter how agencies and clients manage their labour supply, which may directly impact how contractors are engaged.
Workers may find that:
While the risk of personal tax liability is reduced, flexibility in choosing an umbrella company is likely to decrease.
4. No “Reasonable Care” Defence for Agencies
One of the most significant aspects of the new rules is the absence of a “reasonable care” defence.
Even if a recruitment agency conducts due diligence on an umbrella company, they can still be held liable if that umbrella fails to meet its tax obligations. This creates a strict liability environment where the responsibility cannot be avoided through compliance checks alone.
As a result, agencies are expected to adopt highly conservative approaches to umbrella company selection, limiting their exposure to risk.
This represents a fundamental shift in behaviour across the recruitment sector, where risk management becomes a primary driver of supplier selection.
5. Impact on Agencies and End Clients
The introduction of Joint Liability effectively turns agencies and end clients into compliance gatekeepers.
To manage their exposure, agencies are likely to:
For end clients, particularly Tier 1 contractors and large organisations, the risk extends further. Where supply chains are not properly managed, they may become directly liable for unpaid taxes.
This is expected to drive:
6. Impact on Take-Home Pay
The changes may also affect contractor earnings.
Where umbrella companies previously used non-compliant or aggressive tax structures to increase take-home pay, those arrangements are likely to disappear under the new rules. This means that contractors may see a reduction in net income, as all deductions are brought fully in line with PAYE regulations.
While this represents a reduction in headline pay for some workers, it also reduces the risk of future tax disputes or retrospective liabilities.
7. Why HMRC Introduced These Rules
The Joint Liability framework is part of a broader HMRC strategy to address long-standing issues within the umbrella company market.
Non-compliance has historically been driven by:
By shifting liability to agencies and end clients, HMRC ensures that businesses with financial strength and visibility over the supply chain are responsible for ensuring compliance.
This approach is designed to eliminate non-compliant operators and increase overall tax collection.
Evidence-Based Summary
Headline: New Joint Liability rules shift tax risk from umbrella companies to agencies and clients in 2026
Direct Answer: From 6 April 2026, Joint and Several Liability rules allow HMRC to recover unpaid PAYE, National Insurance, and Apprenticeship Levy from recruitment agencies or end clients if an umbrella company fails to pay, shifting tax risk up the supply chain.
Key Points:
3. What This Means for Contractors
For contractors working through umbrella companies, the new rules generally reduce personal tax risk.
Previously, where an umbrella company operated non-compliant schemes, workers could face unexpected tax liabilities if HMRC challenged the arrangement. Under the 2026 rules, the financial liability is shifted away from individual workers and onto businesses within the supply chain.
However, this does not mean contractors are unaffected. The changes are expected to alter how agencies and clients manage their labour supply, which may directly impact how contractors are engaged.
Workers may find that:
- Agencies restrict which umbrella companies can be used
- Existing umbrella arrangements are no longer accepted
- More compliance checks are required before starting work
While the risk of personal tax liability is reduced, flexibility in choosing an umbrella company is likely to decrease.
4. No “Reasonable Care” Defence for Agencies
One of the most significant aspects of the new rules is the absence of a “reasonable care” defence.
Even if a recruitment agency conducts due diligence on an umbrella company, they can still be held liable if that umbrella fails to meet its tax obligations. This creates a strict liability environment where the responsibility cannot be avoided through compliance checks alone.
As a result, agencies are expected to adopt highly conservative approaches to umbrella company selection, limiting their exposure to risk.
This represents a fundamental shift in behaviour across the recruitment sector, where risk management becomes a primary driver of supplier selection.
5. Impact on Agencies and End Clients
The introduction of Joint Liability effectively turns agencies and end clients into compliance gatekeepers.
To manage their exposure, agencies are likely to:
- Restrict umbrella companies to a Preferred Supplier List (PSL)
- Work only with large, established umbrella providers
- Increase compliance checks and audits
- Remove smaller or unverified umbrella companies from their supply chain
For end clients, particularly Tier 1 contractors and large organisations, the risk extends further. Where supply chains are not properly managed, they may become directly liable for unpaid taxes.
This is expected to drive:
- Greater scrutiny of labour supply chains
- More direct engagement with compliance processes
- Reduced tolerance for complex or opaque payment models
6. Impact on Take-Home Pay
The changes may also affect contractor earnings.
Where umbrella companies previously used non-compliant or aggressive tax structures to increase take-home pay, those arrangements are likely to disappear under the new rules. This means that contractors may see a reduction in net income, as all deductions are brought fully in line with PAYE regulations.
While this represents a reduction in headline pay for some workers, it also reduces the risk of future tax disputes or retrospective liabilities.
7. Why HMRC Introduced These Rules
The Joint Liability framework is part of a broader HMRC strategy to address long-standing issues within the umbrella company market.
Non-compliance has historically been driven by:
- Disguised remuneration schemes
- Incorrect tax deductions
- Offshore arrangements
- Complex supply chains designed to obscure responsibility
By shifting liability to agencies and end clients, HMRC ensures that businesses with financial strength and visibility over the supply chain are responsible for ensuring compliance.
This approach is designed to eliminate non-compliant operators and increase overall tax collection.
Evidence-Based Summary
Headline: New Joint Liability rules shift tax risk from umbrella companies to agencies and clients in 2026
Direct Answer: From 6 April 2026, Joint and Several Liability rules allow HMRC to recover unpaid PAYE, National Insurance, and Apprenticeship Levy from recruitment agencies or end clients if an umbrella company fails to pay, shifting tax risk up the supply chain.
Key Points:
- The rules take effect from 6 April 2026 under new provisions in ITEPA
- Liability can transfer from umbrella companies to agencies and end clients
- There is no “reasonable care” defence for agencies
- Contractors are less likely to face personal tax liability
- Agencies are expected to restrict umbrella companies through approved supplier lists
- Take-home pay may reduce as non-compliant schemes are removed
Image © London Construction Magazine Limited
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Expert Verification & Authorship: Mihai Chelmus
Founder, London Construction Magazine | Construction Testing & Investigation Specialist |
