Joint and Several Liability (JSL): What the April 2026 Reforms Mean for Recruitment Agencies

You’ll have heard a lot about the upcoming Law change already. It dominated industry conversations at the end of 2025, and agencies that haven’t started preparing really do need to start now. This shift has the potential to disrupt contractor payroll and increase your agencies exposure to liability costs.

In this blog, we cover what’s changing, why it matters, and what you should be doing ahead of time to stay compliant and avoid unnecessary disruption.

What is Joint and Several Liability?

What does it mean for recruiters and contractors?

Who can HMRC hold liable?

What’s happening with industry suppliers?

What should you be doing to prepare?

What is Joint and Several Liability (JSL) under the April 2026 Umbrella Company reforms?

A major shift is hitting the recruitment supply chain on 6th April, when new rules around Joint & Several Liability (JSL) come into force. This update (landing as part of a new chapter in the Finance Bill) is designed to clamp down on tax non‑compliance in the umbrella company world. In simple terms: if an umbrella doesn’t operate PAYE and NICs correctly, HMRC can immediately recover the unpaid tax from anyone in the supply chain including recruiters and end clients.

What’s important to understand is that HMRC doesn’t need to prove who caused the error, only that the tax hasn’t been paid. Early indications also suggest that agencies and end clients may be approached first where an umbrella can’t meet its liabilities. The intention is crystal clear: to encourage better oversight and due diligence across labour supply chains, ensuring everyone involved is working with compliant partners.

This isn’t the first time that the Government has used the recruitment supply chain to act as a first line of defence in tax evasion, with reforms on the way there can be little doubt that the world of umbrella companies is significantly changing. Lucy Tarrant, Solicitor & MD at Cognitive Law

From Cognotive Law: A more detailed read about The Finance Act.

How will Joint and Several Liability affect recruitment agencies and contractors?

For recruiters, the reality is straightforward: there’s now a much higher expectation to ensure you’re working with compliant, credible umbrella partners. If an umbrella fails to do what it should, the agency is exposed to resulting tax liabilities and potential legal action. Ultimately, it’s about raising standards, protecting your brand, and keeping your contractor workforce running smoothly. In practice, this will look like:

• Working only with reputable, fully compliant umbrella companies
• Strengthening contracting and inhouse due diligence processes
• Keeping clear evidence of compliance on file

JSL does not apply to self-employed contractors genuinely operating outside IR35, as no PAYE obligation arises elsewhere in the supply chain. HMRC may still challenge the if IR35 status determination is correct.

Inside IR35 contractors may already be asking questions however, and while they aren’t liable under JSL, the reforms will almost certainly narrow the list of umbrellas, agencies are comfortable working with. Some workers may need to move to a different provider - but the upside is greater clarity, better standards, and a safer, more transparent payroll experience overall.

Is there a reasonable care or due diligence defence under the Joint and Several Liability rules?

Recruiters are asking whether they can mitigate risk and avoid liability if they’ve acted responsibly - and the short answer is no. Under the current draft rules, there’s no “reasonable care” defence built into JSL. That means even if you’ve done your checks and followed best practice, HMRC can still pass the liability your way if an umbrella fails to meet its obligations. It’s not about blame - it’s about the system shifting accountability upstream, so agencies need to be absolutely sure they’re partnering with umbrellas that do things properly.

Although this liability can’t be avoided and sounds onerous, there is a lot that recruiters can do to shape compliance across the whole sector.
Lucy Tarrant, Solicitor & MD at Cognitive Law

Who can HMRC hold liable under Joint and Several Liability?

HMRC has a clear order of who they’ll look to first to recover unpaid taxes - but once the umbrella is out of the picture, anyone else in the chain can be pulled in too. Here’s how that will typically play out:

And in more complex supply chains, the same principle applies - liability can shift depending on how the chain is structured and who sits where within it.

Recruiters should be aware this may prompt some clients, MSPs or RPOs to review recruiter terms, seeking references to joint and several liability or additional contractual protections. While such clauses may be requested, contractual protections do not remove statutory tax liability.

Now is the time to review existing contracts to ensure that all parties are clear on their obligations, and to educate everyone in the supply chain on their responsibilities. Lucy Tarrant, Solicitor & MD, Cognitive Law

How are umbrella industry suppliers responding to the upcoming changes?

The umbrella sector hasn’t been sitting still. In the runup to JSL, industry bodies have been upgrading their standards, tools, and support systems to help recruiters and umbrellas stay compliant with far less friction. Broadly, the support now falls into two key areas.

Auditing & Accreditations

Accreditations have continued to evolve over time and are increasingly thorough in line with industry expectations. Today’s auditing frameworks combine legal, tax, and employment law reviews with core documentation checks - incorporation details, insurances, VAT registrations, filings, and operational processes. The aim is to give recruiters clearer reassurance that the umbrella meets recognised codes of conduct and is operating to a consistent, compliant standard.

Many providers now also offer practical tools alongside accreditation from Key Information Document (KID) sharing and secure document storage to Umbrella PSL management dashboards including automated alerts and notifications. All of this helps agencies streamline due diligence and easily evidence compliance.

Payroll Verification

The biggest leap forward is in payroll verification technology. These systems audit pay calculations, confirm deductions, and provide proof that both Real Time Information (RTI) submissions and tax payments have been correctly submitted to HMRC - giving recruiters visibility they’ve never really had before. They also generate audit ready reports and flag issues instantly through automated alerts. Examples in the market include:

• SafeRec – Payslip Audits
• FCSA – veriPAYE
• Professional Passport – Fortis

These tools are rapidly becoming essential as all members of the supply chain seek transparent, data backed assurance that contractors are being paid correctly and compliantly.

What should Recruitment Agencies do now to prepare for Joint and Several Liability?

There are four practical steps agencies should take now to get ahead of the reforms:

1. Audit Your Supply Chain
   Record all contractors and umbrellas you are currently working with and review your contracts to understand where you sit in the JSL chain. This gives you a clear starting point for assessing risk.
2. Assess Your Exposure
   Review your umbrella PSL and check whether each provider holds recognised accreditations and payroll verification capabilities. These tools will support ongoing compliance, recordkeeping, and reporting.
3. Confirm Your Preferred Supplier List
   A tighter Umbrella PSL not only reduces your exposure but also streamlines due diligence checks. Decide which umbrellas you will work with going forward and ensure they meet your compliance standards. You’ll also need to consider that MSPs, client and funders may review Umbrellas they are willing to work with too.
4. Communicate Clearly
   You’ll need to clearly communicate your approach and manage expectations with both umbrellas and contractors:

• Explain any migration plans or your requirements to Umbrellas if they want to retain your business.
• For contractors who need to move umbrella, outline why certain providers are no longer permitted.
• Give timelines, instructions, support materials, and reassurance that moving to a PSL approved umbrella will be a smooth and supported experience.

Once your PSL is set, ongoing management is key. Compliance is not a one-off job - supply chains will evolve, and you’ll need continuous auditing, transparency, and good data to stay protected. Partnering with industry providers can make this significantly easier.

How 3R supports you

At 3R, we take pride in staying ahead of risk and compliance on behalf of our recruiters. Our industry leading Backoffice platform includes contractor payroll solutions backed by a vetted PSL of accredited and verified umbrella companies. Our Risk & Compliance team monitors this PSL and supports agencies with any contractor migrations required if an umbrella falls short of compliance.

If you would like to learn more about how 3R helps agencies work compliantly with umbrellas, or you would like a demo of our technology - please get in touch.

Cognitive Law is a UK law firm with specialist employment and recruitment industry expertise, advising recruitment businesses on contracts, compliance (including JSL, IR35, AWR and Conduct Regulations), restrictive covenants, and tailored employment law support.