On the 21st July 2025, the government officially unveiled the draft legislation for the new Joint & Several Liability (JSL) rules that will affect umbrella companies from April 6th, 2026. If you’re working through an umbrella company or considering it, here’s what you need to know in plain English.
What Are These New Rules?
The new “Chapter 11” rules mean that recruitment agencies (and clients in some cases) will now be held responsible for ensuring the correct PAYE and National Insurance contributions are paid on behalf of umbrella company workers. Think of it as a safety net to protect workers and the tax system.
Under these rules:
- If there’s an agency involved: The recruitment agency with the direct contract to supply workers becomes accountable for any unpaid taxes
- If there’s no agency: The end client takes on this responsibility
- The umbrella company remains primarily responsible, but now there’s backup accountability
Why Is This Happening?
The government expects these measures to raise £2.8 billion for the Treasury, including £800 million in 2026/27 alone. The aim is to crack down on non-compliant umbrella companies that have been avoiding their tax obligations, which hurts both workers and compliant businesses like SmartWork.
As Treasury Minister James Murray MP put it: “The days of using umbrella companies to wilfully avoid paying hundreds of millions of pounds in tax are coming to an end.”
What’s New in the Legislation?
The draft rules introduce some important definitions:
Umbrella Company: Now legally defined as a business that employs workers for the purpose of supplying labour to clients.
Purported Umbrella Company: This new concept tackles fake umbrella arrangements where entities appear legitimate but are actually evading tax obligations through worker misclassification or payment diversions.
What Does This Mean for You as a Worker?
The good news: If you’re working through a compliant umbrella company like SmartWork, these changes should actually strengthen your position. You’ll have additional protection knowing that agencies and clients now have skin in the game when it comes to ensuring proper tax compliance.
No immediate changes: The rules don’t take effect until April 6th, 2026, so there’s plenty of time for everyone to prepare.
What Does This Mean for Agencies and Clients?
Industry experts are calling this a wake-up call for agencies and clients who may have been less careful about their umbrella company partnerships. As one industry leader put it: “If you’re an agency thinking this will be a massive change, then you have been partnering with the wrong umbrella companies.”
The message is clear: due diligence on umbrella company partners is now more important than ever.
SmartWork’s Position
At SmartWork, we’ve always operated with full compliance at the heart of everything we do, demonstrated by our decade-long FCSA Member status. These new rules actually validate our approach and should give our contractors, agencies, and clients even greater confidence in our services.
We believe these changes will help level the playing field by weeding out non-compliant operators who have been undercutting legitimate businesses through tax avoidance schemes.
What Happens Next?
- April 6th, 2026: The new JSL rules take effect
- Now until then: Agencies and clients will be reviewing their umbrella company partnerships more carefully
- Industry impact: We may see some market consolidation as non-compliant operators exit the market
The government is still accepting feedback on the draft legislation at umbrellacompanyevidence@hmtreasury.gov.uk.
Our Commitment to You
As we’ve always said, compliance isn’t just about following the rules; it’s about protecting the people who trust us with their employment and ensuring a fair marketplace for everyone.
These new rules reinforce why choosing a reputable, compliant umbrella company has always been the smart choice. At SmartWork, we’re fully prepared for these changes and will continue to provide the reliable, transparent service you’ve come to expect.
Have questions about how these changes might affect you? Our team is here to help. Get in touch with us to discuss your specific situation and how we can continue to support your contracting journey.
This article is based on the draft Finance Bill 2025-26 published by HM Treasury. The final legislation may be subject to changes before it comes into effect in April 2026.
