Umbrella companies – Joint and Several Liability

Government has now published the draft legislation relevant to the introduction of joint and several liability for the tax conduct of umbrella companies in labour supply chains.  The legislation will be introduced as a new Chapter 11 to Part 2 Income Tax (Earnings and Pensions) Act 2003 and will come into effect from April 2026.

The legislation means that any party which contracts with an umbrella company for the supply of labour will be jointly and severally liable to pay any amount payable in respect of PAYE and National Insurance Contributions (NIC) that the umbrella company is liable to pay. 

If the umbrella company pays all PAYE and NIC due on payments to workers there is no liability to transfer

If the umbrella company pays only part of the PAYE and NIC due on payments to workers the company that receives the supply from the umbrella company (the agency or the end client (if there is no agency)) will be liable for the balance

If the umbrella company does not pay any of the PAYE and NIC due on payments to workers the company that receives the supply from the umbrella company (the agency or the end client (if there is no agency)) will be liable for all PAYE and NIC due

Agencies and end clients who contract with umbrella companies will still be able to enjoy all of the practical advantages of that arrangement, but it will come with a conscience.  They will need to be confident of the compliance credentials of the umbrella company and the most effective way to obtain that confidence will be via regular and effective due diligence. 

Read the draft legislation here. 

Aspire comment

This new legislation will implement further obligation on companies which use umbrella company supply to ensure that their supply chain is compliant.  Together with the existing provision to deny VAT input tax where there is fraud in a supply chain, the transfer of debt provision in regard to PAYE and NIC is likely to focus attention to detail.  Effective due diligence will be essential. 

If you would like to discuss your due diligence process and what is needed, contact us on enquire@aspirepartnership.co.uk or 0121 445 6178