COMPLIANCE
“Understanding the trajectory of these changes and the upcoming implementation of joint and several liability is essential for the payroll professional”
2003 contains umbrella company JSL and several liability to JSL.
Chapter 11 – umbrella companies The JSL provisions are contained in 61Y(2) where the liability is attached to the relevant party. The relevant party, further defined in 61Z, is joint and severally liable along with the umbrella company to pay any amount payable in relation to the qualifying umbrella company payment. This is as long as the umbrella company arrangement conditions are met. The legislation targets the ‘top agency’ where there’s an agency in the chain, but the end client where there isn’t an agency. There’s a caveat though that, where there’s no umbrella and there’s a contract of employment with the agency, again, the end client could be liable with no umbrella company in the chain. The legislation will be in force for payments made from 6 April 2026, so it isn’t retrospective. The draft legislation is open to consultation until 15 September 2025. Joint and several, not shared liability The important part of JSL is that it isn’t a ‘shared liability’; it’s joint and several. JSL ensures that multiple parties within the labour supply chain can be held accountable for unpaid taxes and NICs. So, if an umbrella company fails to fulfil its tax obligations, the recruitment agency or end client can be pursued by HMRC to recover the shortfall. How JSL works in the labour supply chain With JSL in place, there’ll be a significant change in operational and due diligence responsibilities, as follows: Due diligence Agencies will be incentivised to rigorously vet umbrella companies before engagement, using comprehensive checks. These could include reviewing payslips, company credentials, financial stability and compliance accreditations, such as those provided by the Freelancer and Contractor Services Association (FCSA). Transparency reporting Agencies and umbrella companies will have to adopt greater transparency in
reporting contractual arrangements and payroll operations. Enhanced reporting could include the use of real-time payslip auditing tools and HMRC’s payslip checker. Contractual adjustments There’ll need to be substantial revisions in contractual arrangements. Contracts must explicitly delineate the tax and employment obligations of each party, clearly allocating responsibility for payroll taxes and employment rights. Risk management Recruitment agencies will increasingly demand indemnities or insurance-backed due diligence assurances from umbrella companies, introducing another layer of complexity in managing compliance risk. “Joint and several liability ensures that multiple parties within the labour supply chain can be held accountable for unpaid taxes and National Insurance contributions” Independent policy initiatives When ‘option three – deemed employment’ was announced, I was commissioned to draft an independent review into the impending legislation. As part of this review, I was tasked with providing solutions. (See https://ow.ly/ qezl50WmZWG for more details.) This resulted in the concept of JSL. This wasn’t a popular choice with other bodies, in fact no one else other than the FCSA backed it, but my experience told me that it would serve the purpose, and it was likely that HMRC could accept it. My review, The Umbrella Reforms ,
Government announced that the direction of travel was JSL. It’s possible that JSL was already on HMRC’s radar, but it was noted that because my report detailed it as a solution and the FCSA backed it, it gave the Government an indication that it would be accepted by the industry. Prior to writing this report, I had been a senior policy adviser with the Office of Tax Simplification at HM Treasury. However, for the whole of my professional life, as an independent consultant, I’ve been getting involved in consultations, giving feedback to Government departments and drafting policy papers on various different issues. As an independent expert, I feel that it’s important my voice is heard. I think a lot of independent professionals don’t feel that they’re in the position to contribute at Government level. However, if only large organisations respond, the feedback the Government gets is skewed. Responses need to be concise and answer the questions that are actually being asked. What helps the most is providing solutions, and this is where policy work comes into its own. Practitioners are best placed to understand how a measure works in practice so, their knowledge can be extremely useful in a consultation. Umbrella company regulation In addition to the change in tax policy, the Government has also promised to consult on the regulation of umbrella companies in autumn 2025. In the Employment Rights Bill roadmap, the regulation is set to become effective by 2027. The regulation will be overseen by the introduction of the Fair Work Agency. This is set to become operational in 2026 and will centralise enforcement and compliance oversight. Conclusion Ultimately, these changes aim to restore integrity and transparency to the labour supply chain. This will hopefully restore faith in the umbrella company market, protect workers’ rights and close significant tax loopholes. n
was submitted to HMRC and HM Treasury in March. On12 June, the
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| Professional in Payroll, Pensions and Reward |
Issue 113 | September 2025
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