For years, the temporary labour market has operated on a relatively straightforward formula: clients need talent, agencies source it, and umbrella companies handle the payroll. But as the contingent workforce has scaled, so has His Majesty’s Revenue and Customs’ (HMRC) determination to close the UK’s stubborn tax gap.
In a decisive move to flush out non-compliance, the government has introduced Joint and Several Liability (JSL) frameworks for the umbrella marketplace under the Finance Bill. The rule alters the DNA of supply chain risk by shifting financial accountability – and the ultimate tax bill – straight up the recruitment chain.
What is Joint and Several Liability (JSL)?
To understand what JSL means, it helps to look at the words themselves. In legal terms, “several” essentially means “separate”. Under a joint and several liability framework, if two or more parties are responsible for a debt, HMRC can pursue either party for the full amount. They don’t particularly care who pays, nor will they get involved in arguments between you and your suppliers about who should pay; they simply want the Exchequer to receive its due.
This is a massive departure from traditional debt transfer rules. Previously, demonstrating “reasonable care”—such as running standard due diligence or collecting compliance certificates—offered a solid layer of protection.
The new framework operates on a basis of strict liability. If an umbrella company in your supply chain fails to correctly remit PAYE income tax or Class 1 National Insurance Contributions (NICs), HMRC has the statutory power to bypass the non-compliant provider and collect the total outstanding shortfall directly from the Relevant Party higher up the chain.
Who is the “Relevant Party”?
HMRC’s primary target under this legislation is the business closest to the end-client that holds the commercial contract
- Recruitment Agencies & MSPs: If an agency or Managed Service Provider sits between the client and the umbrella, they are the first port of call for HMRC.
- End-Clients: If a business engages an umbrella company directly without an agency intermediary, the liability falls squarely on the end-client.
The Compliance Blindspot: Even if you acted in complete good faith, there is no “reasonable excuse” defence under these rules. Fraud, administrative miscalculations, or the collapse of an umbrella provider will no longer shield recruitment businesses from retrospective HMRC claims.
Why Has HMRC Flexed Its Muscles?
According to data published on GOV.UK, an estimated 700,000 individuals work via umbrella companies in the UK. While many providers operate diligently, a persistent and unscrupulous minority continue to facilitate disguised remuneration, mini-umbrella company fraud, or unapproved expense schemes.
By shifting financial accountability up the supply chain, HMRC is making the parties who select the payroll providers responsible for their compliance. The policy aims to starve non-compliant operators of market access entirely.
Furthermore, this tax measure is just the opening salvo. While JSL addresses the immediate tax gap, the government’s broader regulatory regime—including the statutory regulation of umbrella companies under the Employment Rights Bill and the newly operational Fair Work Agency—promises even tighter oversight of worker rights and minimum wage enforcement.
How to Protect Your Supply Chain: An ADVANCE Action Plan
With the financial stakes higher than ever, a passive, “tick-box” approach to compliance is a luxury no agency can afford. At ADVANCE, we recommend shifting from occasional onboarding reviews to continuous supply chain governance.
1. Map Every Labour Route
Conduct a comprehensive audit of your contingent workforce. Identify every agency, subcontractor, and umbrella company currently paying workers on your clients’ sites, ensuring you have total visibility over complex or multi-tiered supply chains.
2. Consolidate Your Preferred Supplier List (PSL)
Managing a bloated PSL makes rigorous due diligence incredibly expensive and time-consuming. Consolidate your panel down to a core group of trusted, financially stable payroll partners who can withstand deep scrutiny.
3. Demand Real-Time Payment Evidence
Do not rely on verbal assurances or static PDFs. Work with partners who utilise independent payroll auditing platforms like SafeRec, or those who can provide transparent line-by-line monthly reconciliations alongside direct, verifiable evidence of PAYE submissions from the HMRC Government Gateway.
4. Verify Financial Substance & Credibility
An indemnity clause in an umbrella contract is only as good as the balance sheet behind it. Ensure your PSL partners are backed by years of industry experience, strong credit ratings, and clear accreditation from respected bodies like the Freelancer & Contractor Services Association (FCSA) or SafeRec.
Looking Ahead with ADVANCE
Change can be daunting, but it also provides a unique opportunity for market leaders to shine. At ADVANCE, we have always championed an uncompromised approach to compliance. We welcome this increased scrutiny because it protects legitimate workers, levels the playing field for ethical businesses, and secures the supply chain for our recruitment partners.
By partnering with a compliance-first provider, you can turn a regulatory headache into a commercial advantage—offering your clients a fully vetted, risk-insulated solution that leaves no room for unexpected tax bills.
