From 6 April 2026, the Joint and Several Liability (JSL) rules changed the risk profile for recruitment agencies using umbrella companies. By way of a reminder, under the legislation, where an umbrella company doesn't correctly operate tax, HM Revenue & Customs (HMRC) can recover the resulting liabilities – including unpaid Pay As you Earn (PAYE) and employee and employer National Insurance contributions (NICs) - from the recruitment agency with the contract to supply the worker to the end client. Where there's no agency in the chain, the liability can instead sit with the end client.
Until recently, much of the conversation around JSL has understandably focused on what could happen. However, with reports of some umbrella companies experiencing financial difficulties, we may be approaching a time when the implications of JSL are seen in practice. With that in mind, this article explores what agencies should be looking for in an umbrella partner and why both financial and compliance due diligence are so important when it comes to mitigating risk.
Why financial due diligence matters
Compliance due diligence has been part of responsible umbrella engagement for a long time. Under JSL, it remains essential – but it shouldn't be considered in isolation.
Financial due diligence matters too.
HMRC's own good practice guidance says umbrella companies should be financially viable and able to meet their ongoing financial commitments. This includes being able to make their next payroll on an ongoing basis, even where they haven't yet been paid by a recruitment agency or end client.
That's an important benchmark.
Agencies should therefore consider whether their umbrella partners have the financial resilience to meet payroll, tax and other obligations consistently.
Financial due diligence could include:
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Financial strength and creditworthiness
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Published accounts and Companies House information
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The history and stability of the business
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Changes in directors, ownership or company structure
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Appropriate insurance arrangements
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The umbrella's ability to fund payroll and meet liabilities
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Any indicators that could suggest financial pressure or instability.
No single check can remove every risk. Equally, financial strength on its own doesn't demonstrate tax compliance. The objective should be to build a rounded picture of the organisation you're trusting with your workers and your supply chain.
Compliance due diligence remains just as important
Financial resilience needs to sit alongside robust compliance checks.
HMRC recommends that businesses undertake due diligence on umbrella companies and monitor them throughout the relationship. Under JSL, that ongoing element becomes particularly important.
An umbrella might pass an onboarding process today, but agencies need confidence that compliant practices will continue tomorrow, next month and next year.
That means looking for evidence that PAYE and NICs are being operated correctly, understanding how workers are being paid and questioning anything that doesn't look right.
It's also worth remembering that due diligence shouldn't simply be a paperwork exercise.
Accreditations and certifications such as FCSA and SafeRec can provide useful reassurance, but agencies should understand the business behind the accreditation and satisfy themselves that what happens operationally matches what's promised on paper.
JSL wasn't designed to remove umbrella companies from the supply chain
Amid the increased focus on liability, there's a danger that the purpose of the legislation gets lost.
JSL wasn't introduced to stop agencies working with compliant umbrella companies.
It was introduced to tackle tax non-compliance in labour supply chains involving umbrella companies.
HMRC continues to publish detailed guidance for agencies, workers and umbrella companies on how compliant umbrella arrangements should operate. Its good practice guidance specifically sets out how responsible umbrella companies can demonstrate compliance and provide good support to workers and recruitment agencies.
In other words, the direction of travel isn't about removing the umbrella model. It's about raising standards and making it much harder for non-compliant operators to compete with businesses that do things properly.
Umbrella companies have an important role to play
For recruitment agencies and contractors, a well-run umbrella company provides a valuable employment and payroll system.
For agencies, umbrella providers can deliver important operational and commercial benefits. They reduce the need for additional in-house payroll resource to manage large or fluctuating contractor populations, helping agencies control the cost and complexity that come with processing payroll, administering employment benefits and meeting employer obligations themselves.
Established umbrella providers may also offer commercial arrangements that support agency cash flow, including access to credit terms, giving agencies greater flexibility when managing the gap between paying workers and receiving payment from clients. Combined with the employment, payroll and compliance support an umbrella provides, these benefits demonstrate the important role compliant umbrella companies continue to play within the temporary labour market, a role recognised within HMRC's guidance and approach to the sector.
For workers, a good umbrella will provide clarity around their pay, employment rights and deductions, as well as somewhere to turn when they need support. Umbrella employment can also provide continuity of employment across multiple agencies and end clients. A good umbrella can help contractors plan for their financial future by providing access to a workplace pension and, where available, salary sacrifice arrangements for personal pension contributions.
Those benefits haven't disappeared because JSL has arrived.
What has changed is the importance of choosing an umbrella partner that agencies can trust – from both a compliance and financial perspective.
The right response to JSL is better due diligence
Not all umbrella companies represent the same level of risk. That’s why it’s important that agencies understand the risks properly and make informed decisions about who they work with.
That means asking two equally important questions:
Is this umbrella operating compliantly?
And:
Is this a financially robust business that we can confidently rely on to meet its obligations?
The strongest umbrella partners should be able to provide agencies with the transparency and evidence needed to answer both.
If you’d like to understand how we can help you mitigate JSL risk, speak to our team about our approach to compliance, financial resilience and supply chain assurance.
