What's Happening?
The upcoming joint and several liability (JSL) provisions within the umbrella legislation, set to take effect on April 6, 2026, will significantly alter the engagement of contingent labor in the UK. This
legislation places direct tax liability on clients and recruitment agencies if an umbrella company fails to remit PAYE or national insurance contributions. HR leaders are advised to anticipate these changes and develop contingency plans to avoid a disruptive scramble. The legislation is expected to lead to rapid bans on umbrella companies, forced migration of workers to in-house or agency payrolls, and a reconsideration of IR35. These changes will challenge HR departments to manage compliance while maintaining workforce continuity.
Why It's Important?
The introduction of JSL legislation is crucial as it shifts the tax liability burden onto businesses, potentially exposing them to significant financial risks. HR teams must redesign contingent workforce models to mitigate exposure to catastrophic tax risks. The legislation's impact is compounded by the historical context of IR35 reforms, which previously led businesses to favor umbrella arrangements as a safer alternative. However, the new JSL rules reverse this logic, making umbrellas riskier than IR35. This shift necessitates proactive planning by HR professionals to avoid unintended consequences and ensure compliance with tax obligations.
What's Next?
HR leaders are encouraged to study the legislation and its legal implications, engage with their boards early, and plan for operational impacts. As the April 2026 deadline approaches, those who delay may face irreparable damage to their firms. The legislation's complexity, particularly regarding the concept of 'connected' agencies, requires careful attention, as liability can arise from the failure of another party beyond the hiring firm's control. HR departments must prepare for the rolling liability window, which exposes businesses to tax risks for nearly two months after payroll runs.
Beyond the Headlines
The JSL legislation introduces ethical and legal challenges, as businesses must navigate the complexities of tax liability without full control over umbrella companies' actions. The legislation's impact on workforce models may lead to broader shifts in employment practices, with potential implications for labor rights and agency relationships. The need for strict due diligence and compliance measures may also drive changes in HR strategies and corporate governance.