COMPLIANCE
Rebecca Seeley Harris, Employment Status, Off-Payroll and IR35 Expert, Re:Legal Consulting Ltd, explains what joint and several liability (JSL) is and what that means for the future of umbrella companies
T he umbrella company tax landscape is about to evolve significantly under the new tax policy of deemed employment. In addition to this, the Government has also announced that there’ll be consultation on umbrella regulation in autumn 2025. Understanding the trajectory of these changes and the upcoming implementation of JSL is essential for the payroll professional. A brief history of umbrella company tax policy reform Umbrella companies originally emerged as a practical solution to changes in the UK’s employment landscape, particularly in response to the IR35 legislation introduced in 2000. However, as their popularity surged, so too did the scope for tax non-compliance and fraudulent activity. A lack of formal regulation allowed non- compliant entities to exploit loopholes, leading to substantial tax losses for HM Revenue and Customs (HMRC). In 2022/23, HMRC data showed a tax gap of £500 million arising solely from disguised remuneration schemes orchestrated through umbrella companies.
Additionally, ‘mini umbrella company’ fraud proliferated, where small companies were fraudulently established to abuse value added tax (VAT) flat rate schemes and the employment allowance. The previous Government initiated several reviews and consultations between 2021 and 2023. The consultation Tackling non-compliance in the umbrella company market identified three main policy options: l mandating due diligence l transfer of debt l deemed employment. Initially, the Conservative Government
change aims to close loopholes exploited by unscrupulous umbrella companies and places direct liability on the recruitment agency, significantly altering the existing operational model. Deemed employment explained Initially, it was understood that deemed employment meant that the employer’s reference number would move from the umbrella company to the employment business. If this had happened, it could have rendered the umbrella company effectively redundant. This sparked a lot of campaigning within the industry. The solution would be JSL. That would enable the umbrella company to continue to function and allow HMRC to be able to enforce a tax debt directly against a third party, without a time-consuming transfer of debt. On 12 June, the Government announced to a group of stakeholders that the direction of travel would be JSL. On 21 July, the draft Finance Bill was published, containing the new legislation. The Government was true to its word and the new Chapter 11 Part 2 of the Income Tax (Earnings and Pensions) Act (ITEPA)
chose to pursue mandated due diligence. However, following a
change in Government, the Labour administration opted instead for the more impactful measure: option three – deemed employment. From April 2026, legislation will shift the obligation to account for pay as you earn (PAYE) from umbrella companies to the recruitment agencies that supply workers to end clients. Where there’s no agency, the end client will become responsible. This fundamental policy
| Professional in Payroll, Pensions and Reward | September 2025 | Issue 113 18
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