Far from refiring ‘outside IR35’, JSL for umbrella companies has ‘hidden gotchas’ for PSCs

What any old someone might ‘suppose’ that someone else might ‘assume’ is a weakness in the woolly JSL legislation that must be struck out – Egos. 

As I told a journalist on the reporting beat for the Kingsbridge Blog on Tuesday (29th July 2025), I have serious concerns about the woolliness of the trigger conditions for bringing Personal Service Companies (PSCs) into the scope of draft legislation intending to impose joint and several liability (JSL) on the clients of umbrella companies from April 2026. 

Joint rules, woolly triggers, and a journalist’s hat 

The journalist kept it under their hat but here’s the thing – if triggered, those woolly conditions incoming to Chapter 11 ITEPA 2003 don’t just create JSL, they may have the unintended consequence of forcing many payments to PSCs to be treated as earnings, and thus override Chapter 8 (IR35) and Chapter 10 (off-payroll working rules), writes Roger Sinclair, legal consultant at Egos. 

I’m aware that I’m a guest contributor for the blog of an IR35 insurer.  

‘Hidden gotchas’ for PSCs in umbrella company joint and several liability rules  

So, let’s start with the ‘red meat’ in the shape of the much-disliked Intermediaries legislation to explain that, while I’m glad my concerns on Tuesday were not reported given that they were still forming, they’ve now deepened since I discovered the JSL rules contain ‘hidden gotchas’ for PSCs. 

Introduced in 2000, IR35 was bad.  

It required the construction of a non-existent hypothetical contract, divination of its content, and then assessment of whether or not that hypothetical contract would, for tax purposes, fall into the ‘bag’ we call ‘employment’.   

Hardly clear and certain in its application? It must be IR35 

Now, 25 years down the line, the reported cases continue to flow.   

Even leaving aside whether the underlying principles of IR35 were a good thing, I suspect all would agree that it was hardly clear and certain in its application. 

From bad to worse: The Managed Service Company (MSC) legislation  

MSC legislation, introduced in 2007, was worse. 

The question here was whether or not an ‘Managed Service Company Provider’ (as defined) was ‘involved’ with the (putative) Managed Service Company. 

Currently in 2025-26, HMRC seeks to interpret the MSC legislation in a way that brings into its net many contractors who simply engaged accountants to assist with the administration of their companies. I know of many who are currently suffering through the legal process here, as their cases work their way through the tribunal system (and doubtless then up through the appeals courts).   

Seriously unclear and uncertain in their application? It must be the MSC rules  

Again, leaving aside whether the underlying principles of the MSC legislation were a good thing, I suspect that those individuals on the front line of this litigation would agree that the legislation was seriously unclear and uncertain in its application. 

If the MSC legislation was poorly worded, my current take on the draft Finance Bill measures seeking to impose JSL on umbrella companies’ clients is that they are even worse.  

IR35? Bad. MSC? Worse. JSL? You ain’t seen nothing yet… 

Now, I’m not talking today about the JSL parts – I’m looking at what might be termed the ‘anti-avoidance’ provisions, found at Chapter 11 ITEAP, 61Z1. 

There are two aspects to these ‘anti-avoidance’ provisions – the first, relating to the self-employed, I’ll also pass on for today.   

The second aspect relating to “labour” (this is the word used in the proposed s61Y(1)(b)(i) – which is relevant to s61Z1, as I will discuss below) provided via what we’d all call ‘PSCs’, is what is seriously concerning me.  

In Finance Bill 2025-26, ‘labour’ might well mean simply ‘any work actually done personally’ 

Worryingly, I see no wording here that might support any suggestion of an interpretation of “labour” being limited to ‘blue collar’ workers, for example.  

It seems to me that “labour” might well mean simply ‘any work actually done personally’, i.e. as opposed to the provision of some specific deliverable. 

Warning: three things that may happen to remuneration via a PSC under umbrella JSL rules 

As I read these provisions currently, they seem to provide that, if a PSC falls foul of the JSL legislation in relation to an engagement, then all remuneration receivable by the individual, and any other amount that it is “just and reasonable to attribute to the provisions of the services by the individual” (Chapter 11, 61Z15(b)), would be: 

(a) wholly taxable as “earnings” (meaning fully subject to income tax and NIC) 

(b) regardless of IR35 (or MSC) status 

(c) JSL would apply, as if the payment of those earnings had been made by an umbrella company 

Where JSL for umbrella companies might catch Personal Service Companies 

So, what might cause a PSC to fall foul of the legislation? I’ll quote from it: 

“It is reasonable to suppose that one or more participants in the arrangements, other than the [PSC] or the individual, would assume that a substantial proportion of amounts provided to the [PSC] in respect of the services will be paid to the individual as earnings.” 

Woolliness one: the ‘reasonable to suppose’ test 

First, “reasonable to suppose”. Arguably, that might be a bit stronger than a ‘could theoretically’ (my wording) – but not much. 

It may mean no more than ‘might possibly’ or ‘maybe’ – certainly less than ‘probably’, and ‘reasonable to believe’. Again, all my own words (i.e. terms not in the bill). So, it could easily mean ‘significantly less than 50% probability’.  

And, of course, supposition, purely subjective, needs no underlying factual basis! 

Woolliness two: the identity of the ‘supposing’ party 

Secondly, who is doing the ‘supposing’? Massively disconcerting to me is that this supposing is not even limited to the participants! As chartered tax adviser David Kirk (a leading expert in this space, and one whom I hold in high regard) put it recently in an article about similar wording in the parts of JSL legislation relating to the self-employed: 

“The client? The man on the Clapham Omnibus? The average HMRC inspector?” 

Source: David Kirk, founder of David Kirk & Co. 

Beware, under JSL’s anti-avoidance provisions, the supposer may be clueless! 

And further, what is that nebulous individual to ‘suppose’? Simply that one or more of the actual participants would ‘assume’ something! One thing is clear – this woolly ‘supposing’ is not even limited to those who might be considered to have any actual knowledge. 

Even if these points get addressed by policymakers, it may be wise to consider the consequences where, in what many would regard as a perfectly innocuous scenario, a: 

“substantial proportion of amounts provided to the [PSC,] in respect of the services will be paid to the individual as earnings.” – [See ITEPA Chapter 11, 61Z1 2(c)] 

Under umbrella JSL rules, payments to PSCs may risk being treated as earnings 

This proposed legislation may risk interpretation having the result that, where what has been provided by a PSC is “labour”, even regardless of IR35 (or MSC) status, payments made to a PSC would be required to be treated as “earnings” of the individual – and with all accompanying tax and NIC consequences. 

It’s understandable that the JSL legislature would wish to safeguard against such situations as one that arose a few months ago – where a ‘rogue’ recruitment agency engaged workers via PSCs, but misled the client into an erroneous belief that the workers were engaged on a different basis.   

A much wider net  

But the net cast by this draft JSL legislation seems to me to fall much more widely than that.  

Maybe it’s a good thing that affected parties have until September 15th 2025 to make their views on the draft Finance Bill 25-26 known to HMRC. 

Now, I’ll be the first to admit that it is early days, and I may not yet have correctly grasped the full implications. But I have to say that at the moment, I am very concerned for PSCs, particularly against the background of our ‘bad-to-worse’ experience with the IR35 and MSC legislation. 

And finally, when you assume, you make an… 

In legislation – particularly in tax legislation – the public, I suggest, is entitled both to clarity and to certainty. And a test which revolves around what someone without any actual knowledge might reasonably ‘suppose’ that someone else would ‘assume,’ seems to me to be wholly devoid of either.   

And I think we all deserve better than that. 

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