Since 6 April 2026, recruitment agencies and end clients have been jointly and severally liable for PAYE, National Insurance contributions and the Apprenticeship Levy that an umbrella company fails to pay. Joint and several liability (JSL) carries no reasonable care defence. If an umbrella in your supply chain defaults, HMRC can pursue the agency for the full amount, however carefully that umbrella was selected.
Six months in, the question is no longer whether agencies understand the rule. It is whether their contracts, records and supplier checks would survive contact with an HMRC enquiry.
What Joint and Several Liability Actually Means in Practice
The regime sits in Chapter 11 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), sections 61Y to 61Z2, inserted by the Finance Act 2026, which received Royal Assent on 18 March 2026. Where a worker is supplied through an umbrella company, the agency closest to the end client is treated as responsible for operating PAYE on that worker’s earnings. Where there is no agency in the chain, the duty falls on the end client.
This is strict liability. HMRC does not need to show that the agency knew about the default, benefited from it, or skipped its checks. It needs only to show that the tax was not paid.
HMRC said as much in its updated guidance of April 2026: if an umbrella company has not paid the correct amount of PAYE, HMRC may recover it from the agency or end client. There is no good faith carve-out and no due diligence exemption written into the statute.
That distinction changes the nature of supplier checks. They no longer function as a legal defence. They function as commercial risk management, which is the only lever an agency has to reduce the chance of facing the liability at all.
Why Supply Chain Debt Transfer Is Different This Time
Agencies have lived with debt transfer before. The Managed Service Company legislation, the offshore intermediaries rules and the Criminal Finances Act 2017 all pushed liability up the chain. Each carried a defence of some kind: reasonable care, reasonable prevention procedures, or a requirement for HMRC to establish knowledge.
JSL carries none. Liability attaches by position in the supply chain.
The statute also contains no apportionment mechanism. HMRC can pursue any liable party for 100% of the debt. A party that pays may then seek contribution from co-liable parties under the Civil Liability (Contribution) Act 1978, which is a civil recovery exercise against a business that has usually just failed to pay its tax bill. The scale is not marginal: the Tax Information and Impact Note puts 30,000 recruitment agencies, 400 umbrella companies and 700,000 workers within scope, and the Office for Budget Responsibility expects JSL to raise £2.8 billion by 2031.
Where Agencies Are Still Exposed
The recurring gaps FCSA sees across the sector are these:
- Legacy preferred supplier lists that were never re-papered. Agreements signed before April 2026 frequently say nothing about PAYE responsibility, information rights or access rights.
- Workers routed through umbrellas outside the agreed list. If a consultant lets a worker use an umbrella the agency has never assessed, the liability still lands with the agency.
- No evidence of ongoing monitoring. A check carried out in 2024 says nothing about that supplier’s solvency in late 2026.
- No visibility of onward sub-supply, where an umbrella outsources payroll or operates through connected entities.
- Concentration risk. If 70% of your umbrella volume sits with one provider, your JSL exposure sits with one counterparty.
What Agencies Should Have Documented by Now
The useful test is simple. If HMRC wrote to you tomorrow about an umbrella that had defaulted, what could you produce within 48 hours?
You should be able to evidence which umbrella companies you have used in the current and previous tax year, the contractual terms governing each relationship, and the checks carried out before and during it. You should be able to reconcile assignment rates paid out against gross pay reported, and identify every worker placed with each provider.
Contracts need an explicit allocation of PAYE responsibility, a right to request Real Time Information submission evidence, and a right to terminate if that evidence is not produced. Indemnities are worth having, but an indemnity from an insolvent umbrella is worth nothing. Treat them as a secondary layer.
One practice worth naming: some agencies are now using balance sheet size, credit terms or rebate levels as a proxy for compliance assurance. Financial strength tells you something about recoverability. It tells you nothing about whether PAYE is being operated correctly.
FCSA Accreditation and Supplier Risk
FCSA Accreditation does not transfer or extinguish an agency’s statutory liability. Nothing can. What it provides is a documented, independently assessed basis for selecting suppliers.
FCSA Members are assessed annually against published standards covering employment practice, payroll operation, and tax and financial compliance. Assessments are carried out by independent regulated professionals, including accountants and employment law specialists, and cover PAYE operation, holiday pay, statutory payments and the structure of deductions from the assignment rate.
For an agency, the value is narrow and real. It reduces the field of credible suppliers and gives an evidenced rationale for the ones chosen. The liability stays with you. The probability of it crystallising is what you can influence.
FCSA’s Position
JSL has turned umbrella selection into a balance sheet decision rather than a procurement preference. Agencies still working from supplier lists assembled before April 2026, without re-papered contracts and without ongoing monitoring, are carrying an exposure they have not priced.
The work is unglamorous: check the list, fix the contracts, evidence the monitoring, repeat. It costs considerably less than a PAYE debt you did not create.
Check every umbrella you use against the FCSA directory of members, and read about FCSA Membership and the assessment standards that Members are measured against each year.
Sources
- Finance Act 2026 (c. 11), as enacted: https://www.legislation.gov.uk/ukpga/2026/11/enacted
- Income Tax (Earnings and Pensions) Act 2003: https://www.legislation.gov.uk/ukpga/2003/1/contents
- HMRC, Work out pay from an umbrella company: https://www.gov.uk/guidance/work-out-pay-from-an-umbrella-company
- ContractorUK, JSL umbrella rules now in force: https://www.contractoruk.com/news/jsl-umbrella-rules-now-in-force
- Advance, What is joint and several liability? A guide for the UK recruitment supply chain: https://www.advance.online/government-law/what-is-joint-and-several-liability-an-essential-guide-for-the-uk-recruitment-supply-chain/
- FCSA directory of members: https://www.fcsa.org.uk/directory-of-members/
