Joint and Several Liability - What Does This Mean?

After yesterday’s publication of the draft Finance Bill by HMRC, we’ve now had confirmation that there will be a ‘strict liability approach’, with no room for excuses, regardless of lack of awareness, fault or intent. This isn’t just policy now – it will be the law.

• Joint and Several Liability (JSL) will be implemented from April 2026, which means relevant parties in the supply chain (agencies and end-clients) will share accountability for PAYE underpayments. HMRC will be able to recover unpaid tax from any party in the chain.

• In other words, this means that recruitment agencies (or clients, where no agency is involved) will become legally liable for PAYE and NICs where workers are paid via Umbrella companies.

• It’s worth noting that the wording of ‘Relevant Party’ appears to suggest that only the 'top agency' in the chain (the one with the contract with the client) appears to be the only one that becomes liable if there are multiple agencies involved – putting more onus on the agency.

  
  

Agencies and clients will no longer be able to distance themselves from responsibility for Umbrella tax compliance.

For anyone who is not working with a compliant Umbrella – it’s now a real risk to your business.

Should you already be using compliant Umbrellas, please be reassured that nothing will need to change in the day to day operations of your business.

It’s always advised however, that it’s good practise to thoroughly audit and vet your Umbrella supply chain. 

Need help? We can advise you on where to start;

• Identify the entities in your supply chain and understand how workers are being engaged and paid – what contracts have been signed for example? Are they employed or self-employed? Is this in line with your/the client’s expectations?

• Check payslips and reconciliation statements you have obtained from workers for unexplained deductions (sometimes called skimming) or underpayment of Minimum Wage.

• Does the Umbrella company claim they are ‘HMRC approved’? Be very wary - HMRC does not actively endorse or promote any Umbrella companies.

• Check the accreditations of the Umbrella (FCSA is the gold standard) and cross check these with said accreditation’s website to see if they are still live. Clipper have been proud members of the FCSA for 6 years.

• Check the Umbrella company that you work with on Companies House and look into their documentation. Are they newly incorporated? This may suggest they don’t have the experience in compliance. Check the financials – if poor, this could suggest difficult cashflow. Can they therefore guarantee to be able to pay your workers?

• Has an Umbrella promised increased take-home pay, or additional untaxed payments? This could be a sign of tax avoidance.

• Agencies and clients will likely need to adopt real-time due diligence and auditing measures to effectively manage their compliance risks. Clipper will be partnering with a specialist company who can provide this – details to follow shortly.

For those who haven’t used a compliant Umbrella before, or those who may raise the question of is it worth using Umbrellas full stop, it’s a valid question that we’ll be happy to explore with you. Bringing everything in-house can involve significant financial commitment to your business – there’s payroll systems to consider, staffing and insurances to bring in. Furthermore there’s the employment costs of SSP, SMP and the legal liability of employment – a compliant, trusted Umbrella will shoulder all of this responsibility. We’re ready made to deal with whatever needs you have.

As one of the recognised, original respondents to the 2023 consultation, Clipper Contacting have been following the developments extremely closely and warmly welcome the proposals – we’re proud to be playing our part in promoting a more transparent and compliant contracting landscape. With16 years of experience of navigating various complex legislations, we are ready and able to guide and support you through this next stage, if you so require it. Contact your usual dedicated point of contact, or the office on 01305233170 for more information.