How the 2026 Joint & Several Liability legislation changes contractor payroll risk

From 6 April 2026, changes to UK contractor payroll legislation under Chapter 11, ITEPA 2003 will significantly alter how risk is assigned across contractor supply chains using umbrella companies.

The introduction of Joint & Several Liability (JSL) gives HMRC the power to recover unpaid PAYE and National Insurance Contributions (NICs) from agencies, Managed Service Providers (MSPs), and end clients, not just umbrella companies.

For businesses engaging contractors through umbrella payroll arrangements, this represents a fundamental shift in compliance risk and financial exposure.

What Is Joint & Several Liability in Umbrella Company Arrangements?

Joint & Several Liability means that multiple parties can be held fully responsible for the same PAYE and NIC tax debt.

Under the new legislation, if an umbrella company fails to correctly account for or pay PAYE and NICs to HMRC, HMRC may recover the entire unpaid amount from any relevant party in the contractor supply chain.

This includes:

• Recruitment agencies
• Managed Service Providers (MSPs)
• End clients engaging contractors
• Key points businesses must understand:
• Liability applies to the full unpaid amount, not a proportion
• It includes errors, underpayments, miscalculations, and fraud
• There are no statutory defences for agencies or end clients
• HMRC does not need to prove intent or wrongdoing

Who Is the ‘Relevant Party’ Under Joint & Several Liability?

HMRC defines the relevant party as the organisation closest to the umbrella company in the contractual chain, or the entity with ultimate control if no agency is involved.

 Common scenarios include:

• The topmost recruitment agency contracted with the end client
• MSPs, even if they are not part of the payment chain
• End clients, where no agency is used or agencies are offshore

Even in complex supply chains involving multiple agencies, the topmost agency still carries liability. Shared ownership between agencies and umbrella companies does not remove end-client risk.

Key takeaway: distance from payroll does not equal distance from liability.

What Does Joint & Several Liability Mean for Businesses Using Contractors?

For organisations relying on contractor workforces, the new rules significantly increase financial, legal, and reputational risk.

Without appropriate controls, businesses may face:

• Retrospective PAYE and NIC tax bills
• HMRC penalties and interest
• Resource-intensive compliance audits
• Reputational damage and loss of trust

Importantly, these consequences can apply even where businesses have acted in good faith or relied on third-party umbrella providers.

How to Prepare for Umbrella Company Legislation Changes Before April 2026

To remain compliant and reduce exposure, businesses should take action now.

1. Map Your Contractor Supply Chain

Identify every organisation involved, including secondary agencies and umbrella companies.

2. Work Only With FCSA-Accredited Umbrella Companies

FCSA accreditation provides independent assurance of payroll and tax compliance.

3. Conduct Financial Due Diligence

Ensure umbrella partners are financially secure and consistently meeting PAYE and NIC obligations.

4. Implement Ongoing Compliance Monitoring

This includes payslip verification, PAYE payment checks, and regular compliance reporting.

5. Clarify Payroll Liability Ownership

Understand who is legally responsible for contractor payroll, and whether that risk is acceptable.

How Omega Helps Reduce Contractor Payroll Risk

At Omega, we take a risk-led, compliance-first approach to contractor engagement.

Where contractors are placed through Omega:

• Omega payrolls contractors directly, removing payroll liability from your business
• PAYE and NIC responsibility sits with Omega, not the client
• Our operations team is trained to meet the requirements of the 2026 legislation
• We partner exclusively with FCSA-accredited umbrella companies where applicable
• We manage onboarding, payroll, compliance checks, and ongoing monitoring

The result:

• Reduced legal and financial exposure
• Confidence in contractor payroll compliance
• No added operational burden
• Protection against unintended legislative breaches

In today’s regulatory environment, contractor compliance is no longer optional, it is strategic.

Why Businesses Should Act Now

Although April 2026 may feel distant, HMRC expectations are already changing.

Early action allows businesses to:

• Review contractor engagement models
• Address payroll risk before it becomes liability
• Implement compliant solutions without disruption
• Delaying preparation increases exposure and limits options.

Next Steps: Review Your Contractor Payroll Risk

If you engage contractors, or plan to, now is the time to assess your exposure under Joint & Several Liability legislation.

We recommend a risk review and compliance discussion to evaluate how the changes could affect your contractor workforce and identify practical mitigation strategies.

Speak to Kris Smith, Director | [email protected] | 01453 829535

Because protecting your business should be as important as hiring the right people.

Published January 2026. This content reflects our understanding at the time of publication and is provided for guidance only and does not constitute legal advice.