How will Joint and Several Liability impact the supply chain of temporary workers?

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We’ve written a guide for recruitment agencies that breaks down the government’s announcement on the 21st of July, focusing on the upcoming legislative changes and the impact on recruitment agencies (and opportunities).

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A background to the new umbrella company tax policies

For years, tax avoidance schemes, particularly umbrella company fraud, have been a significant issue for the government, the supply chain of temporary workers and the UK economy. HMRC data shows that between 2022 and 2023 alone, £500 million was lost to disguised remuneration schemes.

Since the government started naming and shaming tax avoidance schemes (and promoters), over 170 have been shamed on the publicly available list.

The government has stepped up its efforts to educate the supply chain about umbrella companies by releasing several online guides for contractors, recruitment agencies and compliance-focused umbrellas. However, despite outlining how compliant umbrellas should operate and warning signs of a non-compliant payroll provider, rogue umbrellas have continued to infiltrate the UK market, posing risks to the entire supply chain.

The call for umbrella company regulations has been prominent for several years from contractors, stakeholders, industry bodies and compliance-driven umbrella companies. In March 2025, as a response to an umbrella company consultation (which ran from June to August 2023), the government outlined three potential options to regulate the umbrella company sector.

Now that the official tax policies have been announced (on the 21st of July 2025), the government has confirmed that Joint and Several Liability will roll out from April 2026, and more information is available below in this article.

The new policies will give “overly casual recruitment agencies the kick they need to take compliance extremely seriously”

Giles Gibson, a Director at StoneBridge Pay, summarises the significance of the new tax policies, highlighting the positive outlook for compliance-driven umbrella companies. He said:

“I am pleased that the government will be implementing Joint and Several Liability because it will undoubtedly help deter non-compliant umbrella companies from entering the marketplace. It will also give the overly casual recruitment agencies the kick they need to take compliance extremely seriously.”

“I’m confident Joint and Several Liability will strengthen the position of compliance-driven umbrella companies like StoneBridge Pay, and I believe we’ll see less activity from greedy, tax avoidance schemes looking to make quick money at the expense of temporary workers.”

“StoneBridge Pay has always prioritised compliance, and we’re proud to be an FCSA member. We have a dedicated in-house Compliance Department whose role is to ensure that we constantly adapt to new rules and regulations, while providing ongoing support to our partners. And, our partnered agencies have secure access to their dedicated SB client portal, where they have real-time visibility of payments made to their referred contingent workers. Transparency has always been, and always will be, at the heart of our service.“

The draft legislation

Below is a summary of the key announcements made by the government on ‘L-Day’:

• As part of the Finance Bill 2025-26, the government is introducing a new chapter (11) into the Income Tax (Earnings and Pensions) Act 2003. Recruitment agencies will share accountability for PAYE when an umbrella company is engaged within the labour supply chain (Joint and Several Liability). The PAYE reference will remain the umbrella company’s. If there is no agency, the end-client shares liability with the umbrella company.
• When multiple parties operate within the supply chain, the “relevant party” is the party that holds the contract with the end-client.
• Additional changes will be introduced to section 4A of the Social Security Contributions and Benefits Act 1992, and the government will have the power to impose Joint and Several Liability for NIC purposes.
• The draft legislation explains how Joint and Several Liability will apply when a “purported umbrella company” is engaged. The FCSA suggests that this has been included to “catch mini-umbrellas and fraudulent arrangements” and to “close compliance loopholes”. While this section of the draft legislation can be broadly interpreted, a “purported umbrella company” is likely to refer to any company that is considered to process payroll for workers within a supply chain (or is believed to be doing so), potentially not limited to payroll providers operating PAYE.
• Umbrella company regulations are expected to be consulted on in the Autumn and will be governed by the newly formed Fair Work Agency (from April 2026).

While major amendments are unlikely, the proposed tax policies are still in the draft stage and are subject to change. You can read the draft legislation (PDF) here.

Joint and Several Liability

There has been a lot of talk about Joint and Several Liability, but what is it and what does it mean for recruitment agencies (and end-clients) in the UK?

• Joint and Several Liability (JSL) means that two or more parties can be held liable for the same obligation. Each party can find itself being responsible for the total liability, rather than a specific share. Essentially, it means that both an umbrella company and the “relevant party” are jointly liable for PAYE (processed by the umbrella).
• If a recruitment agency is referring workers to an umbrella, the recruitment agency and the umbrella are jointly and severally liable.
• If there are multiple parties within the supply chain between the end-client and umbrella company, the “relevant party” is the recruitment agency that has a contract with the end-client.
• If an umbrella is working directly with an end-client, the end-client and the umbrella are jointly and severally liable. Where an agency processes payroll in-house (no umbrella), the end-client will be jointly and severally liable.
• If Joint and Several Liability is implemented and both the umbrella and the agency default, there is a possibility that the end-client could be held jointly and severally liable. However, further clarification on this is required and will hopefully arrive before April 2026.

In an article published by Markel, specialist insurances, they explain that for agencies conducting thorough due diligence, there “should be little to fear”. Markel said:

“For those umbrella companies who have continually invested in compliance, and those agencies/clients who have taken care to carry out due diligence on their supply chain, there should be little to fear from the new legislation. The PAYE responsibilities needed to be complied with are the same as they always were – the only change coming in is where any potential liability may sit.”

A big opportunity for recruitment agencies

Initially, the new legislation may concern professionals working in recruitment, and rightly so. However, it also presents some exciting opportunities for recruitment agencies to use the new policies to gain a competitive advantage over slower-acting competitors. Here are some tips.

• Review and improve due diligence procedures – Agencies cannot afford to have non-compliant umbrellas on their PSL, and many already have strict due diligence procedures in place to ensure that payroll partners are appropriately vetted. Joint and Several Liability comes into effect in April 2026, and there is still time to introduce new due diligence measures to ensure that only the very best umbrellas are accessible to workers. By reviewing current due diligence measures, agencies can safeguard against the risks posed by Joint and Several Liability and reassure clients that compliance remains at the heart of business operations, and always will. Some agencies may fail to act on the new legislation, presenting an opportunity to others to win new business and expand market share.
• Build client and candidate trust – Umbrella companies are regularly scrutinised by stakeholders (including temporary workers). While most abide by the highest standards, a small number of umbrellas have tarnished the sector’s reputation by facilitating tax avoidance. By reassuring clients and candidates that every umbrella on a PSL has undergone the strictest due diligence, workers will be more reassured and are likely to remain with the agency for the long term.
• Reduce costs – While there are rumours that a few of the bigger agencies in the UK may consider moving payroll in-house, this poses significant costs, countless time (and administration) and huge added responsibility. Following April 2026, compliant umbrella companies will continue to provide a highly valuable service by helping agencies reduce costs and ensuring that workers receive correct and efficient payments.

Partner with a proactive umbrella company, not a reactive one

Joint & Several Liability will have a significant impact on recruitment agencies that place temporary workers in the UK. With the risk of devastating tax and National Insurance bills from HMRC, it’s essential that agencies partner with a proactive umbrella, and not a reactive one.

As an accredited member of the Freelancer and Contractor Services Association (FCSA), StoneBridge Pay has successfully proven that we adhere to the highest compliance standards. However, obtaining the prestigious accreditation is not the end of the road.

Every year, we undergo a series of independent audits and assessments to ensure continued compliance with the latest government rules and regulations. We’re delighted to have maintained our FCSA accreditation year after year.

Chris Bryce, Chief Executive of the FCSA, confirms the importance of FCSA accreditation for recruitment agencies seeking compliant and trustworthy umbrella companies to add to their Preferred Supply List (PSL). He said:

“If compliance and due diligence wasn’t already top of recruiters to-do list, it certainly should be now. FCSA Accreditation is surely a must-have for any umbrella on your PSL.”

The newly announced government policies to improve umbrella company compliance have been on the horizon for many years. As a company, we’re delighted that the government values the role that compliance-driven umbrella companies, such as StoneBridge Pay, play in ensuring that temporary workers pay the correct, legal amount of tax and National Insurance.

With a dedicated in-house Compliance Department, we pride ourselves on staying up to date with the latest regulations to ensure that the highest standards are consistently met, allowing our recruitment agency partners to refer to us with complete confidence.

In the build-up to and beyond Joint and Several Liability, we’ll be working closely with our agency partners to reassure them that our compliance-driven service will continue to set the standards within the umbrella marketplace and by referring workers to us, any risks posed by Joint & Several Liability have already been eliminated.

If you are interested in adding StoneBridge Pay to your agency’s PSL, please contact our team today by calling 020 4591 2677 or emailing [email protected].

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