The risk associated with the new umbrella company joint & several liability (JSL) provisions that came into force from 6th April 2026 may mean that for some organisations looking to manage their risk, engaging off-payroll limited company contractors (or sometimes known as “PSCs” – personal service companies) under IR35 is back on the table.
What are the Umbrella JSL rules and why do they matter?
The new umbrella JSL rules, legislated under Chapter 11 ITEPA, are designed to tackle non-compliance in the labour supply chain, particularly where umbrella companies fail to account properly for tax.
In simple terms, where PAYE / NICs are not paid correctly within the supply chain, HMRC can now pursue other parties for that shared liability – either the engager itself, or the agency where there is one or more in the chain. The umbrella company can no longer be relied on to get it right.
There is no defence based on due diligence or reasonable care, meaning organisations that engage workers via umbrella companies must ensure there is robust oversight and ongoing monitoring of those arrangements. Even then, the position is not entirely risk-free as the relevant party may still be liable if anything slips through the net without their knowledge.
This creates a new layer of uncertainty when engaging contractors via umbrella companies, particularly where there is limited visibility or control over how those arrangements are operated in practice.
Umbrella JSL vs IR35 – a shift in perceived risk
There has been a tendency in recent years to view umbrella engagements as the “safe” option. However, the introduction of JSL means that is no longer the case and the rules introduce risk outside of an organisation’s direct control, especially where multiple parties are involved in the supply chain.
While IR35 and the Off-Payroll Working rules have always required careful consideration, it is at least a framework where the engager can take control – implementing their own processes, making status determinations and keeping their own records to evidence compliance.
The good news is that engaging PSC contractors and dealing with IR35 does not have to be scary or difficult!
With the right knowledge and processes in place, IR35 can be managed confidently, consistently, and in full compliance with the legislation.
The rules were never designed to push all contractors inside IR35. They exist to ensure that employment status is assessed properly and fairly, based on facts that can be evidenced.
What HMRC expects to see from organisations dealing with IR35
If your business engages PSC contractors, HMRC is looking for the engager to demonstrate:
- Robust processes that allow for accurate IR35 status determinations made with reasonable care.
- Each engagement assessed on its own facts.
- Relevant staff trained and knowledgeable in the requirements of the legislation and what determines employment status.
- Sufficient records and evidence retained to support decisions.
- Ongoing monitoring of engagements, with processes subject to regular review and audit.
None of this is particularly excessive but it does require structure and consistency.
If you already have a documented onboarding process for contractors, incorporating IR35 compliance into that framework can be relatively straightforward.
If you are new to engaging contractors, or reviewing your current approach, our guides may help:
Not sure? You don’t have to do it alone
If you are considering moving away from Umbrella arrangements due to the risks introduced by umbrella JSL but remain unsure or concerned about IR35, seek advice from a specialist who can assist you in ensuring your organisation can engage and assess contractors in a way that meets your reasonable care obligations.
Final thought
The introduction of umbrella JSL rules has shifted where risk sits in the contractor supply chain.
For some organisations, that may prompt a rethink.
Engaging PSC contractors under the Off-Payroll Working rules is not about avoiding risk. It is about managing it properly, with visibility and control. Contact Bauer & Cottrell today to see how we can help.
Browse our full range of services for Engagers here.
