Industry update: HMRC signals move toward joint and several liability in umbrella tax reform
On Thursday 12th June, HMRC and HM Treasury met with key stakeholders in the umbrella sector, including the FCSA, REC, and SafeRec, to provide early insight into the government’s direction of travel on reforms to umbrella company tax compliance.
QPS has reviewed the outcome of this meeting and can confirm that joint and several liability (JSL) is now emerging as the government’s preferred model for enforcement. Draft legislation is expected to be released on L-Day (Legislation Day) in mid-July 2025, with implementation set for April 2026.
Background: Tackling non-compliance in the umbrella sector
As outlined in the 2024 Autumn Statement, the government committed to clamping down on tax abuse in the umbrella market. Under Option 3 of HMRC’s consultation, the employment business (or end client if no agency is involved) would become the deemed employer for tax purposes, responsible for ensuring correct PAYE is paid across the supply chain.
Earlier drafts suggested the Employer Reference Number (ERN) would move from the umbrella provider to the agency, which would have fundamentally disrupted how umbrella companies operate. The revised proposal now points towards joint and several liability, preserving the operational role of umbrellas while giving HMRC greater enforcement powers.
What is joint and several liability?
Joint and several liability means multiple parties, such as the umbrella company and the agency, can each be held responsible for the full amount of unpaid taxes. If one fails, HMRC can recover from the other.
Why this approach could work?
- Accountability: Increases scrutiny across the supply chain
- Deters fraud: Non-compliant umbrellas will find it harder to survive
- Market continuity: Umbrellas retain their ERN and continue managing PAYE
What we know so far
While the proposed approach is awaiting sign-off from the Exchequer Secretary to the Treasury, James Murray MP, key details have already emerged:
- Primary liability will sit with the agency: If a non-compliant umbrella fails to pay, HMRC will pursue the agency. There will be no statutory defence such as “reasonable care”.
- New legislation: This will not amend s.44 ITEPA, but will instead be written as a new chapter in ITEPA, drafted by Parliamentary Counsel.
Preferred enforcement model: Statutory Transfer of Debt
HMRC’s favoured approach is the Statutory Transfer of Debt (Contingent Liability) Model. Under this, if a shortfall in tax occurs, the liability transfers automatically to the agency, without court action.
This model mirrors existing frameworks used for Managed Service Companies and Off-Payroll Working, and aligns with HMRC’s goal of fast, frictionless enforcement.
Additional policy tools under consideration
The government is also reviewing legislative tools that could support compliance:
- s.689 ITEPA (Offshore Host Employer rules) – Already holds UK entities accountable when using offshore intermediaries.
- s.688A ITEPA (MSC debt transfer) – Transfers tax debt from the service company to its clients.
- Chapter 10 ITEPA (Off-Payroll rules) – Allows HMRC to pursue tax from higher up the chain.
Further models under review include:
- Defined joint employment for tax purposes.
- Umbrella licensing tied to PAYE compliance.
- ‘Failure to prevent’ style liability for negligent agencies.
How QPS is protecting agencies today
At QPS, we’ve long anticipated these changes and have already taken robust action to mitigate risk on behalf of our partners.
- We hold FCSA accreditation across our umbrella operations, recognised as the highest compliance standard in the industry.
- In 2025, we became SafeRec Certified, a key step in verifying live tax compliance. SafeRec independently audits every payslip, RTI submission, and PAYE payment, giving our agency partners real-time visibility and independent assurance that correct taxes are being reported.
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That said, it’s important to understand the operational timing of PAYE:
PAYE liabilities accrue monthly from the 6th to the 5th, must be submitted to HMRC by the 5th, and paid by the 22nd of the same month.
For example:
This creates a lag between submission and payment, meaning that even with real-time auditing, there is a window of risk where PAYE has been submitted but not yet paid. Under the proposed legislation, if a provider failed to pay during this window, the liability could fall to the agency.
QPS is actively investigating further solutions to close this gap, including real-time financial visibility tools and insurance-backed guarantees to provide maximum protection to agencies.
In the meantime, we recommend that recruitment agencies:
- Conduct financial health checks on umbrella providers.
- Use trusted platforms such as CreditSafe to monitor risk factors.
- Seek providers with both FCSA and SafeRec credentials to minimise exposure.
Looking ahead: Umbrella regulation
In tandem with these tax reforms, the Department for Business and Trade (DBT) is preparing to launch a formal consultation on umbrella company regulation, with oversight expected to fall under the new Fair Work Agency (FWA). This would focus on wider employment matters such as holiday pay and rate transparency.
We anticipate the consultation will open in Autumn 2025, with regulation likely to follow closely behind.
Summary
The government’s move toward joint and several liability marks a major shift in how tax compliance will be managed across the labour supply chain. Agencies will no longer be able to rely on contractual distance as a shield from liability. Instead, compliance will need to be proactive, transparent, and independently verifiable.
At QPS, we’re committed to leading this shift, through accreditation, real-time auditing, and continuous innovation in how we protect our partners.
If you have questions about how these reforms could affect your business, or wish to review your current umbrella arrangements, our compliance and onboarding teams are here to help.
