Umbrella Companies, Joint & Several Liability, and End-Client Tax Risk

Increasingly, umbrella companies are marketed as a solution to reduce end-client tax risk, especially in the context of Joint & Several Liability (JSL). Messages from some providers suggest:

• “Using an umbrella company transfers tax risk away from the end client.”
• “Paying workers via in-house PAYE exposes the end client to tax risk.”

This framing is legally and technically inaccurate. In reality, end-client tax risk depends on compliance, not the use of an umbrella.

1. What actually creates end-client tax risk

End-client tax risk arises only in limited circumstances, such as:

• The employer is insolvent or has no realistic prospect of paying HMRC
• The employer operates through offshore structures, mini-umbrella models, or fraudulent supply chains
• The employer cannot be contacted or has disappeared
• HMRC believes the employer is not genuinely operating PAYE

By contrast, using an umbrella company or in-house PAYE correctly does not, on its own, create or eliminate risk.

2. Umbrella companies and “risk transfer”

Umbrella companies do not remove end-client tax risk. Their use simply determines who HMRC may approach first if PAYE or NICs go unpaid. They do not:

• Remove the end client from HMRC’s statutory recovery powers
• Neutralise Joint & Several Liability
• Provide automatic protection for the end client

End-client exposure is determined by compliance, not the payroll model.

3. In-house PAYE with a Contract for Services

When an employment business operates PAYE correctly under a Contract for Services:

• The employment business pays the worker
• PAYE and NICs are correctly calculated, reported, and remitted
• The end client has no PAYE obligation
• End-client tax risk does not increase

The distinction between a Contract for Services and a Contract of Employment does not materially change the risk to the end client. In both models, PAYE liability sits upstream, with the employment business.

4. Routine payroll errors

Minor payroll mistakes—such as incorrect tax codes or RTI corrections—are handled directly between HMRC and the employment business. These do not automatically create end-client tax risk. Risk arises only in the rare cases of non-payment or irrecoverable PAYE/NICs as described above.

5. Joint & Several Liability — the facts

JSL is often presented as a tool that shifts risk to end clients unless an umbrella is used. This is incorrect.

• JSL is a recovery mechanism, not a reassignment of PAYE responsibility
• End-client tax risk under JSL does not depend on the presence of an umbrella
• Correctly operated PAYE removes practical risk for the end client, regardless of the supply chain

6. Key takeaway

End-client tax risk is controlled by compliance, transparency, and correct payroll operation, not by intermediaries or umbrellas.

Where an employment business:

• Operates compliant in-house PAYE
• Engages temporary workers under appropriate contracts
• Accounts for PAYE and NICs correctly

…end-client tax risk does not increase compared with using an umbrella company.

Umbrella companies do not eliminate exposure; correct, auditable payroll processes do.