Executive Summary – Joint and Several Liability (JSL)
Why Agencies Are Protected When Working with Clarity Umbrella
Purpose of this Summary
This executive summary provides recruitment agencies and MSPs with a clear, high-level explanation of how Clarity Umbrella’s operating model removes the practical conditions under which Joint and Several Liability (JSL) could arise under the forthcoming amendments to ITEPA 2003 (effective from 6 April 2026).
Legislative Context – From 6 April 2026, Joint and Several Liability will apply to unpaid PAYE and National Insurance within umbrella company supply chains. Where non-compliance occurs, liability may transfer to the topmost agency or intermediary. HMRC has confirmed there is no statutory defence for inadequate due diligence, making the selection of compliant umbrella partners critical.
How Clarity Umbrella Removes JSL Exposure in Practice – Clarity Umbrella’s model is designed to eliminate the circumstances in which JSL would be triggered:
All contractor earnings are processed through PAYE with no alternative remuneration models; inc. no T&S offering
PAYE tax and Class 1 National Insurance are calculated correctly and reported via RTI for every payroll run
All liabilities are paid to HMRC in full and on time
No tax avoidance, offshore structures, loan schemes, or artificial incentives are operated
Independent Verification and Transparency
Fully accredited member of the Freelancer & Contractor Services Association (FCSA)
Independently audited against the FCSA Code of Compliance
Due diligence documentation available via the FCSA Diligence Hub
SafeRec Auditing provides real-time verification that payslips align with RTI submissions received by HMRC
Open audit support available to agencies, including RTI evidence and HMRC Gateway verification
Clarity Umbrella leverages third-party software and reporting from Kintec, providing agencies with real-time visibility of PAYE liabilities, payments, and contractor-level compliance (see attached for full details).
Employment Model and Worker Protection
Contractors are engaged under an overarching contract of employment based on a Match Pay Perm model
Full compliance with employment law and statutory worker rights
Holiday pay accrued or advanced (by contractor choice) with full payslip transparency
Auto-enrolment pension compliance with optional salary sacrifice to a contractor’s own SIPP (where applicable)
Risk Management Approach
No reliance on insurance products to manage tax risk
No credit terms offered that could compromise PAYE fund segregation
Risk removed at source through compliant payroll operations and independent oversight
Outcome for Agencies
Agencies partnering with Clarity Umbrella can be confident that:
There is no unmanaged tax risk within the umbrella supply chain
Due diligence obligations under JSL are met and demonstrableThere is no practical trigger for Joint and Several Liability to apply
Legislative Compliance, Transparency and Supply Chain Risk Management
1. Introduction
This document sets out Clarity Umbrella’s position, controls, and operating practices in response to the introduction of Joint and Several Liability (JSL) under amendments to UK tax legislation. It is intended to support recruitment agencies and intermediaries in meeting their due diligence obligations when selecting compliant umbrella partners.
2. Overview of Joint and Several Liability Legislation
From 6 April 2026, amendments to ITEPA 2003 (new Section 11) will introduce Joint and Several Liability for unpaid employment taxes within umbrella company supply chains. The legislation is designed to address non-compliance and tax fraud in the umbrella market by extending accountability across the labour supply chain, including:
In certain circumstances, end clients / Umbrella companies / Recruitment agencies and MSPs
Under JSL, the topmost agency or intermediary in the supply chain may be held jointly liable for unpaid PAYE and National Insurance where non-compliance occurs.
HMRC has confirmed that there will be no statutory defence for inadequate due diligence, placing an increased obligation on agencies to ensure that all umbrella partners operate fully within PAYE, employment law, and HMRC guidance.
The forthcoming implementation date means agencies must now ensure that their supply chains, due diligence processes, and contractual arrangements are fully aligned ahead of April 2026. Early engagement with compliant umbrella partners is essential to avoid last-minute remediation and unmanaged risk exposure.
3. Clarity Umbrella’s Compliance Framework
Compliance, transparency, and ethical practice are fundamental to Clarity Umbrella’s operating model. Our framework is designed to align with:
HMRC PAYE and RTI requirements
Employment law and statutory worker rights
FCSA Code of Compliance
Best practice expectations arising from the JSL legislation
3.1 Payroll and Tax Compliance
All contractors are employed under an overarching contract of employment based on a Match Pay Perm model
PAYE income tax and Class 1 National Insurance are calculated and deducted correctly as shown on each payslip
Employer National Insurance and statutory costs are accounted for and paid in full every month to HMRC (gateway confirmations available)
RTI submissions are made accurately and on time for every payroll run (RTI reports available)
3.2 Independent Accreditation and Benchmarking Clarity Umbrella is a fully accredited member of the Freelancer & Contractor Services Association (FCSA).
The FCSA Code of Compliance is independently audited and built on HMRC guidance and employment legislation, providing agencies with external assurance that Clarity’s processes are subject to ongoing scrutiny. Annual auditors BDO and Saffery Champness.
The FCSA Code of Compliance is independently audited and built on HMRC guidance and employment legislation, providing agencies with external assurance that Clarity’s processes are subject to ongoing scrutiny. Regular reviews on payslips are required by the FCSA.
All relevant compliance documentation is made available through the FCSA Diligence Hub, enabling agencies to verify credentials and audit outcomes in real time, which our partnered agencies can have access to.
4. Transparency, Systems and Controls
4.1 SafeRec Auditing (Overview)
In preparation for the implementation of JSL, Clarity Umbrella is introducing SafeRec Auditing, a real-time payroll verification service available to contractors and agencies.
SafeRec enables confirmation that:
Payslips reflect correct PAYE tax and National Insurance deductions
Corresponding RTI submissions have been successfully received by HMRC
Payroll records, tax calculations, and HMRC reporting are aligned
Gateways remain clear and paid to date
This provides an additional layer of transparency and assurance that payroll operations remain accurate, traceable, and compliant.
4.2 Agency Audit Support
To support agency due diligence obligations, Clarity Umbrella can provide:
Provide support and lessons in reading umbrella payslips which can be complicated at times
Monthly payslips and matching RTI submission evidence
Audit documentation demonstrating PAYE liabilities and payments
Scheduled video walkthroughs of HMRC Government Gateway confirmations, where appropriate
We recommend that audit and information-sharing rights are embedded contractually within the B2B contract between the agency and Clarity, enabling efficient access without requiring repeated contractor consent.
4.3 Third-Party Payroll Verification and Agency Transparency – Kintec
Clarity Umbrella partners with Kintec, whose software provides agencies with a high level of assurance regarding PAYE and National Insurance liabilities. Key features include:
RTI Summary Reports: Shows both umbrella companies and agencies that liabilities are calculated and paid on time.
Umbrella Liabilities Page: Allows umbrellas to mark PAYE liabilities as paid, which feeds into reports accessible to agencies for verification.
Agency Portal: Dashboard-style access for agencies to view PAYE liability totals month-by-month and per contractor, including timesheet status and invoice tracking.
Future Integration via HMRC API: Planned endpoints will allow direct retrieval and confirmation of HMRC liabilities, FPS submissions, and potentially bank balances to provide further transparency.
These capabilities, combined with Clarity’s internal compliance processes, SafeRec auditing, and FCSA accreditation, provide agencies with robust, real-time visibility of PAYE compliance, further mitigating the practical conditions under which Joint and Several Liability could arise.
5. Policy Controls
Clarity Umbrella operates clear, documented policies aligned with HMRC guidance, including:
Expenses: No tax relief is claimed on home-to-work travel or subsistence where supervision, direction, or control applies. Clarity Umbrella does not operate a travel and subsistence (T&S) scheme.
Pensions: Full compliance with auto-enrolment legislation and statutory contribution requirements, with the option for contractors to salary sacrifice to their own Self-Invested Personal Pension (SIPP), where applicable.
Salary Sacrifice: Offered only where legally permissible and compliant, and limited to pension arrangements.
Holiday Pay: Accrued or advanced (based on the contractor’s preference) and paid in line with employment law, with clear visibility on payslips of any accrual or payment. Contractor updates and any payments on account in April would be repaid before the start of the new holiday year.
6. Industry Engagement and Legislative Input
Clarity Umbrella’s Managing Director, Lucy Smith, has been actively involved in compliance policy development within the umbrella sector. Lucy served as a Members’ Council Representative for the Freelancer & Contractor Services Association (FCSA) for a two-year term, concluding in October 2025.
During this period, she contributed to sector-wide engagement on regulatory reform and worked alongside Rebecca Seeley Harris on the Government Policy Response document, helping to shape the adoption of the Joint and Several Liability model as a proportionate and workable alternative to earlier proposals including the shared PAYE reference from the agency to the umbrella.
7. Credit Terms and Supply Chain Risk
We advise that at present Clarity Umbrella does not offer credit terms to recruitment agencies.
Umbrella companies hold significant HMRC liabilities each month prior to payment. Extending credit terms could increase supply chain risk if funds intended for HMRC are used to advance contractor payments. In the event of default elsewhere in the chain, this could increase JSL exposure rather than mitigate it. So, caution should be used and we would suggest getting confirmation as to whether this is happening, even if not offered to you directly.
Our position is that avoiding credit terms provides greater protection for agencies and supports proper segregation of PAYE liabilities.
8. Insurance Considerations
At present, there are no insurance products available that cover tax liabilities arising under JSL, and it is unlikely that such products will emerge. Tax debts fall outside the scope of insurable risk, so those offering something may be misleading and we would always suggest checking fine print.
Accordingly, the most effective protection for agencies remains:
Robust due diligence
Ensure industry accreditation is in place
Transparent payroll and RTI reporting
Partnership with fully compliant umbrella companies, those you trust to keep you safe
9. Our Commitment
The introduction of Joint and Several Liability reinforces the importance of transparency, accountability, and genuine compliance across the labour supply chain.
Clarity Umbrella remains committed to:
Full PAYE compliance
Open-book transparency
Independent verification
Protecting both agencies and contractors
10. Market Regulation and Future Readiness
The UK Government continues to explore options for greater regulation of the umbrella company market, including the potential introduction of a licensing or registration regime in the coming years.
While the final structure and timing of any such regulation is yet to be confirmed, Clarity Umbrella actively engages with industry bodies and policy discussions to ensure early alignment with emerging regulatory expectations.
Our existing compliance framework, independent accreditation, and transparent operating model position Clarity Umbrella to adapt quickly to any future regulatory requirements, further reducing risk for agencies operating within our supply chain.
Contact
Lucy Smith
Managing Director
Clarity Umbrella
E: Lucy.smith@clarityumbrella.co.uk
T: 01473 845 835