Since April 2026, joint and several liability (JSL) has changed where accountability sits when an umbrella company gets PAYE wrong. Under the reforms, an agency or end client in the labour supply chain can be held liable for tax the umbrella fails to account for. If you place workers through umbrella companies, the risk is now yours to manage, not simply theirs to carry.
What Does Joint and Several Liability Mean for Recruitment Agencies?
Joint and several liability means HMRC can recover unpaid PAYE and National Insurance from more than one party in the chain, and can pursue any of them for the full amount. Where an umbrella company underpays or disappears, the recruitment agency that supplied the worker, or in some arrangements the end client, can be pursued for the shortfall.
This is a deliberate shift. For years the compliance burden fell on the intermediary closest to the worker. The reforms recognise that agencies choose their umbrella partners and therefore share responsibility for the standards those partners keep.
The practical effect is straightforward. An agency can no longer treat its umbrella relationships as arm’s-length. A tax loss further down the chain can land on the agency’s balance sheet.
Where Does the Liability Actually Sit?
The answer depends on the structure of your supply chain, and it needs to be documented rather than assumed. In most standard arrangements, the party that has the contract with the end client sits closest to the liability if the umbrella defaults.
Agencies should confirm three things before a compliance check, not after one:
- Which entity holds the PAYE obligation for each worker, and whether that is contractually recorded.
- What the umbrella actually deducts and remits, evidenced by real payslip and RTI data rather than assurances.
- What happens to the liability if the umbrella becomes insolvent or exits the market.
Get these written down. HMRC’s enforcement is increasingly built on data-matching across PAYE and RTI submissions, which means discrepancies surface without anyone lodging a complaint.
How Should Agencies Manage Umbrella Risk Under JSL?
The first control is knowing exactly who you work with. An agency that runs a preferred supplier list without checking the compliance standing of each umbrella is exposed by default.
Due diligence should be continuous, not a one-off tick at onboarding. An umbrella that was compliant last year may have changed ownership, adopted a disguised remuneration model, or started applying deductions that erode a worker’s take-home below the National Minimum Wage. Any of those can generate a liability that flows back up the chain.
Practical steps that reduce exposure:
- Restrict placements to a defined list of umbrella companies you have assessed and can evidence.
- Review payslip and deduction data regularly, watching for margin skimming, unexplained deductions and holiday-pay withholding.
- Record who is responsible for PAYE in each contract, and revisit it when arrangements change.
- Treat any umbrella promising unusually high retention rates as a warning, not an opportunity.
An FCSA Member has been through a rigorous compliance assessment against published standards covering tax, employment rights and financial probity, and remains subject to ongoing assessment rather than a single sign-off. That does not remove an agency’s own responsibility under JSL. It does give a documented, independent reference point when you record why you chose a particular partner.
Why the April 2026 Reforms Raise the Stakes
JSL does not operate in isolation. The Fair Work Agency has been operational since 7 April 2026, consolidating enforcement of the National Minimum Wage, holiday pay and agency-worker rights under a single intelligence-led body. It works from data, not just from workers coming forward.
Separately, HMRC’s naming activity shows the scale of underpayment in the market. In March 2026 alone, 385 employers were named, £7.3m was repaid to around 60,000 workers, and £12.6m in penalties was issued. Much of that centred on deductions rather than headline rates, exactly the kind of failure that can now travel up a supply chain under JSL.
Agencies that assumed regulation of umbrella companies would only bite from April 2027 are misreading the position. The liability is live now. The enforcement capability is live now.
The FCSA Position
Joint and several liability makes supply-chain compliance an operating discipline, not a contractual afterthought. The agencies that manage it well will be those that know precisely who they place workers through, review the data that proves those partners are compliant, and document accountability before HMRC asks.
Check who you are working with. You can confirm an umbrella company’s compliance standing on the FCSA Members register, and read more about what FCSA Accreditation requires of the umbrella companies that hold it.
