The information was revealed yesterday [12 June 2025] to a wide group of umbrella company owners, trade body leaders and others involved in the ongoing development of new legislation to take effect in April 2026. 

Participants in the call with HM Revenue & Customs have told Recruiter that the proposal suggests the reforms would include ‘joint and several liability’ (JSL), meaning liability would be shared between the agency and umbrella company, or between the end client and umbrella company if no agency is involved.

This would involve the introduction of a new chapter within the Income Tax (Earnings and Pensions) Act (ITEPA) to establish the JSL.

The primary responsibility for any shortfalls will lie with the lead agency, defined as the agency that holds the direct contract with the end client. This approach aims to ensure accountability throughout the supply chain and reduce non-compliance risks. HMRC has indicated that draft legislation reflecting this position is expected to be released within the next month, providing greater clarity on the final framework. 

The move signals a tightening of regulation around umbrella company arrangements and reinforces HMRC’s commitment to improving compliance and transparency in the labour supply market. Further guidance is anticipated alongside the draft legislation to assist stakeholders in preparing for the changes.

Rebecca Seeley Harris of Re:legal Consulting said: “There is still work to be done despite this announcement because JSL comes in various guises. It won’t be until the draft legislation is published in July that we will find out the details but what we do know is that it will be an absolute liability with no statutory excuse or defence. It will be new legislation in ITEPA. Also, the agency closest to the end client will have primary liability.

“The tax policy is only one part of the puzzle – the next will be the regulation of the industry by the Department of Business and Trade (DBT). There will hopefully be a consultation on this in the autumn.”

She went on to say that the revelation yesterday was “a huge step forward and very welcome. I had been advocating for JSL specifically along with the FCSA [Freelancer and Contractor Services Association] as a workable solution for both HMRC and the umbrella industry, so I was delighted to hear that it is the ‘direction of travel’ for the government”.

Also commenting, Crawford Temple, CEO of Professional Passport, said: “We welcome HMRC’s update today but as always the devil will be in the detail. It will be interesting to see how the agencies react when they learn about their new positions under the proposed legislation – what is key is that there will be no excuses to mitigate their liabilities. There are a lot of unanswered questions and hopefully the draft legislation will provide the clarification that we all need.”

Seb Maley, CEO of tax compliance specialist Qdos, said: “You can feel the collective sigh of relief among umbrella companies and, in some respects, among recruiters too. While the reform itself was never going to be met with open arms, noises from government indicate that the changes will not be as extreme as feared.

“If confirmed in the draft legislation next month, agencies or end-clients will be liable for tax not paid by an umbrella from April 2026 – as opposed to agencies also being responsible for making tax deductions themselves, which has the potential to cause headaches, non-compliance and question marks over the role of umbrella companies in the supply chain.

“Given agencies are set to carry the can for non-compliance carried out by another party – which has hallmarks of the off-payroll working rules – due diligence is set to become even more important in the lead up to April 2026. The cost of engaging a rogue umbrella company could be financially devastating to an agency.”

Maley added: “On the other side of the coin, umbrellas themselves should see this as an opportunity – a chance to demonstrate their compliance, which will make them an attractive proposition to the agencies they work with.”

Chris Bryce, CEO of the FCSA, commented that his organisation and its members were “pleased to see this direction of travel. We thank HM Treasury and HMRC officials for considering our representations, and the evidence we provided. We hope that the JSL approach is endorsed by the Exchequer Secretary and look forward to seeing the legislation”.

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