The JSL shield: A 7-point checklist to protect your business
The new joint and several liability (JSL) legislation due to come into force April 2026, is likely to have some significant implications for small and medium-sized businesses (SMEs), particularly across those sectors which rely on contingent workers employed via an umbrella company.
Under the new rules, if an umbrella company fails to remit PAYE or National Insurance Contributions (NICs) to HMRC, other ‘relevant parties’ in the chain (which could include recruitment agencies or the end client) can be held fully liable for the shortfall. And that’s even the case if the end-client has already paid these amounts to the umbrella company.
HMRC analysis indicates that up to 40% of workers engaged by umbrella firms may have failed to comply with their tax obligations. This means that partnering with a non-compliant umbrella could soon be one of the biggest financial risks facing SMEs in the contractor supply chain. Thus we urge you, do not underestimate the risk this poses.
More compliance red tape
For small and medium-sized enterprises (SMEs) with limited legal or HR resources, the new legislation will introduce a complex, high-stakes layer of financial risk.
The cost of absorbing tighter due diligence, compliance reviews, and risk management is significant, especially when non-compliance by an umbrella company could result in the SME absorbing large and unexpected tax liabilities.
And this situation is sharply contrasted by the shifting landscape of IR35 risk too. Many businesses originally adopted umbrella arrangements as a "safer alternative" to engaging contractors directly. However, recent Supreme Court clarifications and the introduction of the IR35 offset mechanism in 2024 have dramatically reduced the liability for deemed employers. Now, tax already paid by the contractor can be offset against the client's liability, making direct IR35 compliance significantly less punitive than the looming, indefensible threat posed by JSL. This is an ironic reversal, but it’s one that SMEs need to be on top of.
Crucially, this new legislation creates a zero-tolerance liability. If your umbrella fails to pay HMRC, your business is instantly exposed to the full tax debt with no legal defence.
Unlike IR35, which offers a statutory 'reasonable care' defence, JSL offers none. Your business is strictly liable for the entire tax debt, even if you performed thorough checks.
So, what can you do to limit your risk?
Here’s our 7-point compliance checklist.
1. Conduct enhanced due diligence on umbrella companies: Always request evidence of PAYE, NIC and pension payments. Plus make sure to verify company registration, VAT status, insurance, and financial stability.
2. Introduce a formal approved-supplier list: Only work with umbrella companies that meet your compliance criteria. Make sure to review and re-approve suppliers annually (ideally sooner if you can).
3. Strengthen contracts: When drawing up contracts make sure to include clauses requiring proof of HMRC compliance on request. Add indemnity clauses where appropriate, ensuring the umbrella takes responsibility for unpaid taxes. You can also make having a ‘right to audit’ a contractual requirement.
4. Keep clear records: Document all due-diligence checks, decisions, and communications with umbrella companies. Good record-keeping may not be a defence, but it helps demonstrate responsible governance which will be helpful if required.
5. Internal communication: Ensure all staff involved in engaging contractors understand what a compliant umbrella company looks like.
6. Review payment and onboarding processes: Avoid onboarding workers through umbrellas that you have not pre-approved. Flag inconsistencies in invoices or payroll at an early stage.
7. Consider alternatives to umbrella companies: Explore alternatives such as engaging contractors through their own limited companies, direct employment, or the shared responsibility of the professional, employer organisation (PEO) models.
The time to act is now
JSL will mark a fundamental shift in the risk landscape for any business, specifically for SMEs relying on contingent workers engaged via umbrella companies.
With the new rules coming into force next year, the risk of inheriting large tax bills due to your umbrella partner's non-compliance is real and, crucially, indefensible under the new law. Proactive measures are no longer optional - rather they are mandatory for financial survival.
Act now: Build into your workplan an audit of your people, data and reporting processes to ensure full JSL Shield compliance.
Do reach out to Amelore if you would like any support or guidance.