The 'joint and several' liability shift in umbrella companies: what is it, and what does it mean for you?

The government has tightened up the rules on umbrella companies managing PAYE, with the aim of protecting employees and fighting fraud. But what will the changes actually mean?

As an employer, you already have more than enough to worry about. A few years back, IR35 added one more problem to the pile. But then umbrella companies (or simply 'umbrellas') seemed to offer an answer.

Many firms reached for their umbrellas to deal with the deluge of paperwork introduced by IR35 in 2021. Umbrellas seemed to offer a watertight way to keep using temporary labour without getting caught in IR35 (since workers are sheltered by the umbrella rather than the firm).

Then, this year, the weather changed again. On April 6, new rules came into force governing umbrella companies and their clients, in what HMRC calls 'significant changes to PAYE responsibilities'.

What's changing?

As the employer in the supply chain, umbrellas are responsible for workers' employment rights and payments. But if you use an umbrella, the new legislation puts you right in the frame too.

As what HMRC snappily calls a 'relevant party', you're now responsible for PAYE and NICs on payments made to workers supplied via umbrella companies. Agencies and end clients can be held accountable for mistakes and non-payment – even if they did nothing wrong themselves.

What's the problem?

The Treasury has had its beady eye on umbrellas for quite a while. Almost as soon as IR35 dropped, it was talking to contractors to learn more about umbrellas. And it soon unearthed the familiar horror stories and dodgy practices: splitting workforces into tiny companies to siphon public funds, embezzling worker holiday funds, exploiting small business rate reliefs or accumulating PAYE and NIC debts before abruptly shutting up shop to weasel out of paying.

Rogue umbrellas cost the taxpayer bigly. According to HMRC's number-crunchers, umbrellas were used to engage at least 700,000 workers in 2022–23. Of those, 250,000 or more were engaged at some point by umbrellas that failed to comply with their tax obligations. And that costs the Exchequer a cool £500m a year.

What's the big idea?

The new legislation has three main aims.

• To close the tax gap by protecting the taxpayer from losses caused by rogue umbrellas and preventing cash reaching organised crime.
• To ensure a level playing field by stopping fraudulent umbrellas from undercutting compliant rivals.
• To protect temporary workers from whopping tax bills that drop out of the blue when it turns out that their non-compliant umbrella has not been paying their income tax or NICs.

What's this got to do with me?

As 'third-party employers of record', umbrellas have always been responsible for handling PAYE and paying HMRC. And they still are. But now, agencies, managed service providers and potentially end clients are on the hook as well.

This is known as joint and several liability, or JSL. In law, JSL means that two or more people or organisations are jointly responsible for doing something – but they are each individually responsible too. So if one party fails to fulfil the joint obligation, one of the others must step in and do it on their own.

It's a bit like paying for a meal. When you eat dinner at a restaurant with two friends, you are jointly and severally liable for the bill. If both your mates do a runner before the dessert, you can't just pin the blame on them or try to pay for your share alone. As a party to the implicit contract governing your meal, you're on the hook for the full amount – so reach for your wallet or roll up your sleeves and start washing up. (Next time, choose richer friends – and to be on the safe side, don't order steak.)

What does it mean for me?

JSL expands accountability for PAYE from umbrellas to include the firms that use them, giving HMRC more avenues to recover the money than it had before. And in case it isn't already clear, that means you. If an umbrella company fails to make PAYE payments as required, HMRC can recover the money from the agency or end client instead.

A knock-on effect is that you're also obliged to make sure your umbrella runs PAYE properly. Before, if the umbrella broke the rules or made a mistake, only they were liable. Now, you take on liability too.

Under the new rules, agencies must carry out 'due diligence' checks on umbrella companies they work with, to ensure they're legit. Hopefully, that should encourage them to put more effort into finding compliant umbrellas. But if you deal with umbrellas direct, that responsibility falls on you.

What if things go wrong?

As well as laying yet more admin hassles on employers, the change also has important implications if things go south.

For example, if an umbrella goes bust, or decides to shut down and 'take the money and run', the agency or client takes on responsibility for paying the tax due on workers' salaries – even if those people were only ever directly employed by the umbrella.

The most likely effect will be to undermine agencies' trust in umbrellas and make them more wary of using them. Since agencies are now obliged to oversee workers' PAYE anyway, they may feel pressure to employ them directly, rather than subcontracting them out.

As agencies work with fewer umbrellas, some contractors may be left with fewer rights – particularly if they're not TUPE'd across when moving to a new umbrella.

New rules, new risks

The broader effect of the new legislation is to scatter risks across the supply chain – and that makes it harder to pinpoint exactly where the problems lie.

The best antidote to uncertainty is knowledge – and that's where we come in. Isimio, our workforce management platform, helps you keep track of recruitment, shift scheduling, timesheets, compliance, finance and more.

So while we can't magic away the risk of a rogue umbrella company, we can ease the burden of monitoring and compliance, giving you one less headache to worry about.

Learn more and book a demo here.

Relevant Information

• PAYE rules for labour supply chains that include umbrella companies from 6 April 2026 — GOV.UK
• Umbrella company market: changes to income tax rules to tackle non-compliance — GOV.UK
• Tackling non-compliance in the umbrella company market — GOV.UK
• JSL umbrella rules now in force — ContractorUK
• Umbrella company legislative change: a new era of joint and several liability — Deloitte
• Joint and several liability: what agencies and MSPs need to know before April 2026 — giant group