New JSL Rules to Impact HR and Finance Teams with Potential Double Tax Liability

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 accountable for unpaid taxes if they cannot prove that PAYE for contingent workers has been correctly paid to HMRC. This could result in HR and finance teams facing duplicate tax payments, even if they have already paid the umbrella company. The current fragmented payment chain for contingent labor lacks a verifiable audit trail, posing risks to end clients and HR teams. HMRC can apportion unpaid liabilities across the payment chain, including end clients, without prior notification.

Why It's Important?

The introduction of JSL rules represents a significant shift in liability for tax payments within the umbrella employment sector. HR and finance teams must now ensure a transparent audit trail to avoid financial and reputational risks. The potential for duplicate tax payments could strain resources and impact business operations. This development highlights the need for robust compliance measures and could lead to increased scrutiny of umbrella companies and agencies. The rules aim to clean up the sector but effectively transfer liability to end clients, emphasizing the importance of proactive measures to safeguard organizations.

What's Next?

HR teams are advised to review all umbrella engagements and establish processes to settle PAYE liabilities directly with HMRC. Engaging recruitment partners proactively and auditing umbrella compliance are crucial steps to mitigate risks. Updating contracts to reflect new compliance requirements and reassessing off-payroll arrangements are recommended actions. As the JSL rules take effect, businesses must prioritize transparency and accountability in their payment processes to protect against costly exposure and reputational fallout.

Beyond the Headlines

The JSL rules could lead to broader discussions on employment law and tax compliance, potentially influencing policy reforms in the sector. The emphasis on audit trails and transparency may drive technological advancements in payroll systems and compliance tools. Additionally, the shift in liability could impact the relationship between end clients, agencies, and umbrella companies, prompting changes in contractual agreements and business practices.