I have been on paternity leave for the last few months and aside of the joy of being a new father, it comes with other benefits, such as time out, taking a breath and getting some perspective on the everything that is unfolding in front of our very eyes - so please bear with the length of this article, but it could be a hugely valuable 10 minute read for you, your business and your supply chains.
You've got to love our industry. Travelling road shows, podcasts and roundtables, shiny new insurance products. It must mean a new legislation is coming to town.
Of course you would be right. From 6th April "Joint and Several Liability" will become law, and it will change the landscape in terms of consequences befalling supply chains in the event of unpaid liabilities. Whilst I am conscious of not creating my own doomsday narratives and adding fuel to the fire, it is hard not to dispute or underplay this reality.
There's so many articles, so many opinions, so much advice, now I work in the industry I understand and get most of it, but for those who are trying to navigate the impending legislation and to know who and what to believe it must be bloody overwhelming, but I wanted to add some caution and narratives around why supply chains should really think before going head first into a potential pile up.
I think most people now know why JSL was introduced? Ducas Ltd and the accusations that they pocketed £171m and some other examples of smaller revenues being pinched, but Ducas Ltd was the one. This was the straw that broke the camel's back.
So yes, JSL has primarily been introduced to deter supply chains from engaging in tax avoidance or other HMRC prohibited payment models, and given HMRC's absolutely horrific ability to catch and shut down promotors of these non-compliant schemes, JSL will enable HMRC to recover unpaid liabilities from the next liable party in the supply chain. This could be a Recruitment Agency, MSP or End Client.
Whilst the primary target is to stop tax avoidance scheme operators, JSL also targets compliant umbrellas. This wording is taken directly from the draft legislation released last year, "The Government recognises the efforts of the membership and accreditation bodies to drive up standards in the recruitment sector. However, the evidence shows that non-compliant models continue to operate." - this is not directed at the non-compliant operators, who will be paying no attention to JSL and whilst JSL will deter some from continuing to operate avoidance schemes, these schemes will still be operating. What this wording is referring to is accredited or certified umbrella companies who were found to be operating prohibited models, such as the elective deduction model or umbrella companies that was using their accreditations as a shop front and were then steering everyone to a tax avoidance scheme, to name just a couple of examples. I know no one wants to say this out loud, but it is the simple truth and supply chains need to be aware of this, the compliant market has not always been as clean cut as we like to make out, so HMRC rightly want to address this and address this it does under JSL.
This is why JSL is so landscape changing. Whether you payroll 30,000 contractors a week or 30, the consequences are the same for everyone if liabilities are incorrectly paid or just unpaid - HMRC WILL BE GETTING PAID.
Which brings us to the narratives of liabilities. JSL is about liabilities and specifically ensuring that umbrellas are calculating the correct liabilities, deducting the correct liabilities and paying the correct liabilities to HMRC. It is that simple. These endless posts, articles and comments about people running off with money are mental. Of course this cannot ever be ruled out, but if you have proof that liabilities are being calculated correctly, deducted correctly and then paid to HMRC correctly, you know no one is running off with the money, so it becomes a moot point.
I've seen some worrying quotes that downplay the importance of calculating liabilities correctly, "It seems to me the biggest concern with JSL is not whether the tax and NI have been calculated correctly, but whether it has been paid to HMRC". I had to read this 10 times to make sure I hadn't misread it. Tax avoidance operators run schemes whereby they in large all pay HMRC liabilities, what they don't do however is pay the correct liabilities, they normally only pay the NWM and the secondary payment is never disclosed to HMRC. So of course paying the correct liabilities is massive, but so is calculating them correctly. If liabilities are underpaid, then liabilities are going to exist in a supply chain. So ensuring that the liabilities are calculated correctly is where everything starts! So I repeat if liabilities are calculated correctly, deducted correctly and paid to HMRC correctly you have a clean supply chain and can sleep easy.
So what about accreditations, membership bodies and certifications. Now those that know me know that I have been the biggest champion of a certain accreditation, so what I am going to say now is probably going to shock a lot of people. The cold hard truth is that no accreditation, membership body or certification provides a statutory defence when it comes to JSL. We have almost become indoctrinated with this false sense of security that these provide a bullet proof vest and despite Government and HMRC being as clear as daylight about the fact that they haven't worked (again scroll back up to see the wording from the draft legislation) we have once again decided that that's the approach we are going to take in large areas of the recruitment industry, I almost have to applaud, you have to respect the power and influence they exert. I am not going to tell a business what they should or shouldn't do anymore, that choice is the business owners. However the consequences have now well and truly changed so business owners, please, please be aware of this and be aware of what your potential consequences truly are.
This month alone an umbrella company called in administrators on the 2nd of February, owing £500,000 in PAYE and NIC liabilities. Now this umbrella company was accredited up until November 2025, them being accredited didn't change the simple reality that they have still entered administration owing £500,000 and if this was 6th April 2026, £500,000 of liabilities would now exist and someone else would be paying.
There are multiple, multiple examples of umbrella companies failing having been accredited or certified and the cold hard truth is it will happen again, it is one thing that no accreditation or certification can stop as through no fault of their own, they don't have day to day visibility of what's actually going on with that umbrella company's finances, so will never be able to protect a supply chain from their members going out of business - we all need to be honest about this no matter how loudly and proudly we shout about our accreditation or certification and of course I understand everyone still trying to stay relevant and attractive.
With the above said, of course there is still lots of value that they add, I am not trying to piss on any of them in fact quite the opposite, rather just bring an honest narrative to what is and will be the reality going forward. Real-time auditing, payslip audits, proof that liabilities are being calculated correctly, deducted correctly and paid to HMRC correctly, which is of course vital for any supply chain to have visibility of. These liability calculations also include expenses, holiday pay and salary sacrifice calculations that all contribute to ensuring that all liabilities are being paid correctly. They ensure that contractors are also being paid ethically and morally, which is of course hugely important. However staking your business on a "trust me after the event" approach doesn't come without risk and that is the point that needs to be made. Due diligence is the responsibility of every business owner, not the accreditation, and simply outsourcing this and relying on someone else telling you everything is okay is again introducing risk into your supply chains. Government did not pick option 2 which was the due diligence approach, they picked defcon 1, which means being constantly ahead of the curve.
Of course due diligence is a massive, massive part of protecting your supply chains, and thankfully we have technology through accreditations and certifications that allows us to audit in real time, to ensure liabilities are being calculated correctly, deducted correctly and then paid to HMRC correctly, but that doesn't automatically mean your safe and that was the reason I gave the example above. Accreditations and Certifications can only do so much, but HMRC don't give a flying f*ck whether your umbrella has them or not. If liabilities arise, someone's paying, its that simple. The very DNA of the JSL legislation is telling everyone that you can no longer trust the "trust me" way of doing business.
I understand why as an industry we are creating these narratives, fear works, scare tactics work and we have been doing things this way for the last 10 years but when these narratives and tactics introduce risk, then we're being pretty negligent. This myth that they afford protection needs busting once and for all, none of them ever have and I doubt they ever will offer any supply chain any protection from a legal standpoint - if anyone doesn't believe this, then go and ask HMRC directly or failing that your lawyers.
Finally, let's address the ticking time bomb that is credit terms! The fuse has been lit. Now before I go into the crux of this problem, there are of course umbrella companies, who are responsible and do insure credit agreements correctly and robustly - Who remembers the global property crash in 2008 (trying to explain this in a very basic nutshell) - this was caused by toxic debt being wrapped up with AAA credit. As house prices fell, defaults surged on mortgage loans given to high-risk individuals which in turn triggered a liquidity crisis, this collapsed the worldwide property market, collapsed banks, businesses and those low risk AAA credit rated individuals lost their properties as a result of all the toxic debt that existed, and we entered a global recession - remember our Government had to bail out all of our banks it was so bad.
The same thing is going to happen with credit terms. Now of course whilst this is not going to cause a global recession or cause banks to collapse, it will however collapse businesses and its why it is such a good example to use. I have seen so many toxic uninsured credit agreements being given in the last month, that its terrifying. If you're a Recruitment Agency, what visibility do you have that your supply chain is not wrapped up with toxic credit agreements? If a Recruitment Agency collapses and does not pay their credit agreement and this is uninsured, does this topple the umbrella company? If it does topple the umbrella company then you are potentially on the hook for any unpaid liabilities that arise. Umbrellas deal with multiple Recruitment Agencies, and every agreement will and primarily is different. 1 recruitment agency could have the most robustly insured credit agreement (AAA credit), but if 4 more agencies don't (toxic credit) and they default, this starts a chain reaction that could be fatal to any recruitment agency in the same supply chain, not to mention the umbrellas themselves. When I ask agencies if they are getting full disclosure of EVERY credit agreement that their umbrellas have, they simply say no. If you cannot see around the corner, how do you know it's safe to go round it? This is your business, you need to be asking to see every single credit agreement (regularly and its real time position) that your umbrella partner has with other agencies, otherwise how do you know that they are all robustly insured or worst still if you're potentially at risk?
Equally credit agreements which are for a certain amount can prove deadly. I reviewed one yesterday and it was very clear in the terms and conditions that going over the agreed credit amount would negate and void the policy. So if it was for £250,000 and you gave credit of £260,000 one week, and that recruitment agency fails to pay , the umbrella would not even be paid the £250,000 as the agreed credit amount has been breached - once again does this start a chain reaction that has a fatal outcome for your business? You need to see all of this to ensure that you're protecting your business and supply chain. There are some eye watering credit requests being made.
Here's an example of a recent request I was sent at the back end of last year. 21 day credit terms (about £3m over the year), £25 admin fee (so for every contractor sent to us, we would have to pay them a £25 one off admin fee) and a £10 weekly timesheet rebate. On a margin of £20 a week!!!! We of course politely said no, this is the sort of agreement that potentially ends a business and has no commercial value at all. But someone will have agreed to this, of course rightly the choice of any business to say yes. I believe however that this is an insane proposal, but it's what is currently being asked for by some agencies and someone will always, always say yes. Is this insured? Is your business in this supply chain? Its vital you know.
Economically, thanks to horrific budget decisions made by our current Government, we are in one of the most volatile and challenging economic periods since covid, especially the recruitment industry. Businesses are fighting for their lives to stay afloat, more and more credit is being asked for, but once again the risk this is introducing is simply insane. This is going to explode, businesses are unfortunately going to go under, umbrellas are going to go under, and as a result liabilities are going to arise. This means that through no fault of your own, your business could be lumped with having to settle other businesses liabilities that now exist in the supply chain your in, because of toxic credit agreements that aren't worth the paper they are written on.
JSL brings landscape changing risk to supply chains now, it is about how to mitigate this risk or better still kill it. With all due respect, in order to win business, things will be said that aren't always true, assurances will be made, but unlike before when there weren't really any consequences, now there truly are, and it could be your business.
Balance sheets, financial strength, indemnities, they're all well and good for probably and I repeat probably 2 umbrella companies, although no one is too big to fail when dealing with liabilities, and if that happens, not too big to bring a hell of a lot of businesses down with them. Indemnities do not supersede insolvency unless personally underwritten, balance sheets don't break down how much money really belongs to the umbrella company, these are sales narratives that are being used, because they look and sound secure - it's how you win business, I get it.
The better question is if you're a Recruitment Business owner, the question to ask yourself, is if liabilities arise in your supply chain, how much would it take to topple your business? £50,000, £100,000, £500,000, £10,000? I would encourage anyone to ask this question of themselves if you're a recruitment business owner.
The big agencies, the big MSP's, they operate to a different set of rules, they have the financial power and financial reserves, to take the financial blow in the event that liabilities arise in their supply chains? Do you?
I am gobsmacked with some of the narratives that have been created and the freedom that supply chains are accepting them. Supply chains should be killing risk under JSL, where we are now inherently introducing dangerously high levels of it. We must be the only industry that believe narratives articulated by the industry players over factual articulation from the people who actually write the rules HMRC. It's bonkers!
At Orca, we understand what JSL means, we have HAD to change our approach, we don't offer credit terms, we never have and we'll never have one credit agreement with an agency, MSP or end client. Trust me it has and will continue to cost us a lot of lost business, but it will never be worth the risk for us or better still the risk it would introduce to our supply chains. We will be paying our all our PAYE and NIC liabilities weekly to HMRC from April, we will be providing proof that the correct liabilities have been calculated, deducted and paid to HMRC every single week. We will continue to be audited in real-time. However there will be no after event payments, no risk of what is lurking around the corner, just weekly proof and audit chains that discharges the liability risk there and then, in turn protecting our supply chains. Balance sheets, financial strength, indemnities, not relevant or important, it's about paying our clients liabilities as soon as they arise - I know other umbrellas and businesses are doing the same. Why would you not settle liability risk as quickly as possible given what is potentially at stake? It is the most sensible approach for any business and if you are a small or medium sized recruitment business, it's the only approach I would be looking to take, bigger than that it is the most simple one too.
JSL is going to take courage and bravery to see through some of the narratives doing the rounds, and ensuring that you take and make the right decisions for your business. Remember it is your business, do what's best for it. It's not about following the herd into the unknown and crossing your fingers that all will be well.
JSL will completely change the rules, and yet for many they're doing exactly the same thing as they have for the last 5-10 years..............this time the judge, jury and executioner that is HMRC will be waiting.
Good luck to everyone, take from this article what you will (or won't) its gonna be one hell of a ride and its time to buckle in.
