The Ultimate Guide to JSL: How Joint & Several Liability Rules Will Change in April 2026 & How Recruiters Need to Prepare
1,000s of recruitment agencies are risking £millions in non-compliance fines. Is yours one of them?
Risk, fraud and legal non-compliance are rife in the recruitment sector – but staffing firms are about to face even greater challenges. The UK Government is introducing new legislation that places more responsibility on recruiters than ever before.
Generate have 12 years’ experience supporting 100s of recruitment agencies. We compliantly pay over 40,000 contractors every year and are the UK Education sector’s largest payroll partner. Here our experts reveal how employment tax laws will change in 2026, how recruiters will be impacted, and how recruiters can protect their teams, candidates and clients.
What Does Joint & Several Liability Mean?
Joint and Several Liability is a legally binding rule whereby multiple parties are collectively responsible for an entire debt or obligation. Any party in a supply chain can be held collectively or individually liable for the full amount of a debt, in this case unpaid or wrongly paid amounts of tax, regardless of fault or due diligence.
In the case of the Joint & Several Liability legislation that relates to tax, recruitment agencies can be held liable if umbrella companies fail to PAYE or National Insurance Contributions relating to the agency’s workers. The Government can pursue a case against a recruitment agency for unpaid tax without first exhausting recovery options against the non-compliant umbrella itself.
What’s Changing On 6th April 2026?
New umbrella company legislation in the UK Government’s Finance Bill 2025–26 will apply to payments made to umbrella workers for services performed on or after 6th April 2026.
From this Spring, UK recruitment agencies using umbrella companies will shift from effectively outsourcing their tax risk to sharing it. New JSL rule changes empower HMRC to recover unpaid PAYE and National Insurance Contributions directly from recruitment agencies when any umbrella anywhere in their supply chain is found to be non-compliant.
For example, if an umbrella company made an underpayment of £100K, HMRC could hold the recruitment agency liable for £100K, or the recruitment agency liable for £50K and the umbrella liable for £50K (or any split such as 60/40, 30/70 etc).
Umbrella companies will still be the formal employer for the workers and will still hold the primary responsibility to operate PAYE on workers’ earnings. However, certain other “relevant parties” in the chain will become jointly and severally liable for the umbrella’s PAYE where things go wrong.
Why Are The Rules Changing?
The new regulations are aiming to target the recruitment agencies that are knowingly working with or knowingly plan to introduce non-compliant umbrellas into their supply chains. However many recruitment agencies will may also unknowingly have been working with non-compliant and actively fraudulent umbrellas.
The UK Government is ramping up efforts to crack down on tax avoidance. Many supply chains in the staffing industry are so complex that Government enforcement is difficult under the current rules. The country’s 30,000 recruitment agencies currently interact with a market of between 400 and 500 umbrella companies. HMRC reports that a “persistent minority” are involved in tax avoidance and fraudulent schemes.
Over 48,000 “mini-umbrella” companies, usually launched with tax avoidance and fraudulent purposes, have been identified in recent years. In September 2024, HMRC had listed 112 tax avoidance schemes, 106 promoters and 45 connected persons. The JSL amendments are intended not only to recover tax money owed, but also to highlight the importance of legal compliance, and unite every party in a supply chain in working towards compliant practices.
What Do The JSL Rules Mean In Practice?
Who Is Liable For What?
Legal liability extends to any amount payable in accordance with the PAYE and NI regulations on payments made to the worker.
Liability applies to the top agency (closest to the end client) or the end client directly if no agency is involved. Agencies and clients cannot escape liability even if they were misled by an intermediary or conducted due diligence.
In a typical supply chain of umbrella to agency to end client, the agency that has the contract with the end client will be jointly and severally liable with the umbrella company for PAYE on the worker’s pay. If the umbrella contracts directly with the end client, it is they who will share the liability. Where the agency is connected to the umbrella such as through common ownership or is non‑UK resident, the end client may be treated as the relevant party and held jointly liable.
What Are The Consequences of Using a Non-Compliant Umbrella Company?
- Large Financial Loss – Because the liability is joint and several, one non-compliant umbrella can translate into a large tax bill for an agency. Unpaid tax surrounding non-compliant umbrella companies averaged at around £290,000 per case in 2024.. HMRC expects to use JSL to generate £870 million in revenue by 2027, and £2.8billion in tax, interest, and penalties in total by 2031.
- Personal Financial Loss – Joint and Several Liability Notices can be used by HMRC to pursue individual or multiple company directors for the money owed for tax liabilities. Individuals could suffer a loss of assets, wealth and property and even potential bankruptcy depending on the volume of unpaid tax. Whilst JSL was created to target companies, individual directors can be pursued if there is evidence of wilful negligence, fraud or “phoenix” trading (a business that “rises from the ashes” of a previously liquidated company, usually with the same directors, assets, and operations, often for the purposes of avoiding debts).
- Contractor Relationships – Just over two years ago, HMRC estimated that 1 in 3 of all UK contractors were unknowingly working under non-compliant umbrellas. Non-compliance can cause significant financial harm to contractors, freelancers and short-term workers operating through umbrellas. Recruiters who locate a fraudulent umbrella in their supply chains risk damaging their relationships and reputations with contractors who suffer unfairly at the hands of the umbrella.
- Brand & Reputational Damage – Just one case of non-compliance can also damage end client relationships beyond repair. With 92% of professionals trusting word-of-mouth, referrals and recommendations above other forms of advertising, recruitment agencies can see decades of brand-building destroyed from just a handful of poor reviews and negative discussions at industry network events.
What Recruitment Agencies Need to Do in Response to JSL Changes:
Review & Upgrade Supply Chains
To guard against potential cases of non-compliance, recruitment agencies and their clients are expected to significantly enhance their supply chain auditing and oversight.
Recruiters will need to carefully review all of the umbrella providers on their PSL well before the beginning of the 2026–2027 tax year. It is recommended to cut down the number of umbrella partners to only those that are thoroughly vetted and can prove compliance in real time.
Independent verification from tools such as SafeRec ensure that every payslip is independently audited and that tax is being correctly paid on each assignment. Requesting to see and verify your umbrella’s Real Time Information (RTI) reporting data can confirm that tax has been correctly calculated, whilst checking online HMRC accounts and banking records will show these amounts have been paid on time. Saferec provides agencies with this information in real time at whatever level of detail the agency prefers.
Most recruitment agencies are still in the middle of overhauling their supply chains to prepare for JSL, however highly established, larger recruitment firms that are known for their compliant processes will have recommendations for trustworthy umbrellas in their own supply chains. Established industry bodies such as the Recruitment & Employment Confederation and the Association of Professional Staffing Companies will have checklists to help you identify compliant umbrella companies, and will be able to provide advice on finding and assessing reliable umbrellas.
Work With a Compliant Umbrella Company That You Can Trust
Tax compliance has never been more vital for business continuity. Generate compliantly pays more than 40,000 contractors every year. Hundreds of agencies and end clients trust us to protect them from legal risk because of our:
- Industry Recognition – Our FSCA accreditation means we’ve been independently assessed by impartial tax, accountancy and legal professional services firms against the sector’s highest standards. We’re also SafeRec-certified, meaning our agencies get total visibility in real time to ensure correct calculation of payroll, and correct payment of PAYE and NI tax to HMRC.
- Healthy Balance Sheet – Our strong financial foundations mean we’ll protect your agency from any liabilities or reputational damage post-JSL changes. You can rely on us to pay every contractor and every HMRC payment on time every time.
- Reputation – We’ve got 12 years of experience with payroll solutions in over 100 countries worldwide. As the UK Education sector’s largest payroll partner, we know every finance and compliance challenge you’ll ever face, inside and out.
Speak to our finance and compliance specialists to find out how we can help your agency navigate the new JSL tax rules.
