What's Happening?
The UK government is set to implement new Joint and Several Liability (JSL) rules under the Finance Bill in April 2026, targeting abuses in the umbrella employment sector. These rules will hold businesses jointly liable for unpaid PAYE taxes unless they can prove payments were made correctly to HMRC. This could result in end-clients and HR teams paying PAYE twice for the same workers if the payment chain is fragmented. The current system involves end-clients paying agencies, which then pass funds to umbrellas for payroll processing. However, HMRC cannot always verify these payments, leading to potential liabilities.
Why It's Important?
The introduction of JSL rules is significant as it transfers liability for unpaid taxes to end-clients and agencies, creating financial and reputational risks. Businesses could face duplicate tax payments if they cannot demonstrate that PAYE has been remitted correctly. This situation underscores the need for HR and finance teams to establish verifiable audit trails to protect against potential liabilities. The rules aim to clean up the umbrella market but effectively shift the burden to end-clients, highlighting the importance of transparency and compliance in payroll processes.
What's Next?
HR teams must proactively review all umbrella engagements and ensure PAYE liabilities are settled directly with HMRC, maintaining a full audit trail. Engaging recruitment partners to confirm PAYE payment processes and auditing umbrella compliance are crucial steps to safeguard organizations. Updating contracts to reflect new compliance requirements and reassessing off-payroll arrangements under IR35 rules will help mitigate risks. By taking these proactive measures, HR can shield their organizations from costly exposure and reputational fallout.
Beyond the Headlines
The JSL rules highlight broader ethical and legal implications in the employment sector, emphasizing the need for transparency and accountability in payroll processes. The potential for duplicate tax payments raises questions about the fairness and efficiency of the current system, prompting calls for reform. As businesses navigate these changes, they must balance compliance with operational efficiency, ensuring that workers are paid correctly while minimizing financial risks. The rules may also influence long-term shifts in employment practices, encouraging greater scrutiny and regulation of umbrella companies.
