Why JSL indemnity clauses are not a statutory defence for recruitment agencies, and what is

News · Recruitment Agencies · Umbrella Companies · OPRaaS Platform

JSL indemnity clauses are appearing in UK recruitment contracts ahead of 6 April 2026, and they are not the statutory defence the contracts assume them to be. A recent ContractorUK commentary, “Why JSL indemnity clauses putting umbrella contractors on the hook could be a PR disaster”, flagged a pattern in which agencies insert Joint and Several Liability indemnity clauses to push their ITEPA Chapter 11 exposure onto umbrella companies in their PSL, and in some draft contracts onto individual contractors. For recruitment agencies, the harder reading is that the indemnity itself is not a statutory defence under the new regime, and the contracts being drafted now will not do the job they are being asked to do.

HMRC’s interest under ITEPA Chapter 11 is in the unpaid PAYE and NICs, not in who agreed to indemnify whom. When an umbrella underpays and then fails, the indemnity points at an empty estate. The agency named alongside the end-hirer carries the liability anyway, plus the PR weight of contracts that visibly tried to pass risk to the lowest-paid party in the chain. The durable position is the one where the underpayment never happens, and that is a labour supply chain assurance question rather than a contract drafting one.

Why JSL indemnity clauses are not a statutory defence under ITEPA Chapter 11

An indemnity is a contract right between the parties to the contract. Under ITEPA Chapter 11, HMRC’s recovery right runs in parallel and is not bound by the private contractual allocation. HMRC can pursue any party joint and severally liable for the unpaid PAYE and NICs, in any order, irrespective of who has signed what. The agency that is paid against by HMRC has paid a public-law liability. The indemnity, by definition, was a private contractual promise from a party that is now usually insolvent.

In practice this leaves the agency with one realistic outcome. HMRC pursues the agency for the underpayment, and the agency, in turn, looks to enforce its indemnity. The indemnity is theoretically enforceable against the umbrella’s estate, except that the estate has no money to give, which is precisely why the umbrella failed in the first place. Where a contractor has been named in a back-to-back chain, the route becomes a small civil litigation question rather than anything resembling a regulatory shield, and even then the time and cost involved rarely recovers more than a fraction of the loss. The agency carries the bill either way.

What the ContractorUK indemnity-clause reflex looks like, and why it is a PR risk

The pattern, as set out in the ContractorUK piece, is straightforward. Agencies, reading the April 2026 JSL rules and noting that the end-hirer carries the same exposure, reach into their template contracts and add a fresh schedule of warranties and indemnities. The umbrella warrants compliance, the umbrella indemnifies the agency, and in some drafts the umbrella is required to obtain a back-to-back indemnity from the contractor.

The PR problem reads quickly. The lowest-paid party in the chain is being asked, in writing, to underwrite a regulatory regime aimed at the largest. Contractors and their representative bodies have already started circulating screenshots of the worst examples. For an agency that depends on its reputation with worker bodies and the recruitment trade press, the resulting story does not help. ContractorUK also flags a separate concern, namely that agencies attempting to receive value from a contractor in connection with finding the work runs into the Employment Agencies Act 1973.

The position recruitment agencies actually want to be in by 6 April 2026

The position that holds in an HMRC enquiry is the one where there is a mapped supply chain, an umbrella PSL assessed against UK law tests rather than accreditation alone, and a continuously refreshed evidence file showing that the agency saw and acted on risk before HMRC needed to. This is not paperwork. It is a live operating function, owned at director level, with a remediation pattern that triggers exits before insolvency.

The OPRaaS Virtual Compliance Director sits exactly there. OPRaaS, On-Pay-Roll-as-a-Service, is a systemised governance and workforce management partner for organisations that rely on temporary, contractor and contingent labour. Through OPRaaS’s Virtual Compliance Director solutions we embed senior governance leadership into the agency without the cost of a full-time director, building audit-ready controls across JSL, IR35, CIS, GLAA, modern slavery and HMRC labour supply chain expectations. It runs on the OPRaaS LSCA 2.0 Map, Train, Audit and Evidence framework, accessed 24/7.

Five practical moves OPRaaS LSCA 2.0 delivers for a recruitment agency this quarter:

1. A mapped supply chain. Every umbrella, sub-agency, PEO and worker group recorded with the controls expected at each tier.
2. A UK law test on the umbrella PSL. Control, personal service, mutuality, financial risk and integration, supported by payslip and remittance sampling, not accreditation alone.
3. A continuous evidence file. Refreshed inside the OPRaaS VCD platform rather than rebuilt at year end. This is the file HMRC will ask to see.
4. Exit triggers before insolvency. Documented thresholds that move a labour provider off the PSL while there is still time to do so cleanly.
5. A retained governance function. The OPRaaS Virtual Compliance Director as a named, retained capability for end-hirers, recruitment agencies, umbrella companies and managed service providers (MSPs).

What durability looks like once the OPRaaS VCD is in place

The agency’s contract with its umbrellas can return to its proper job, which is to set commercial terms and service levels rather than to act as a regulatory life raft. Indemnities still appear, in proportionate language, but they are no longer the headline of the contract. The headline is the supply chain assurance pattern, which is what the agency’s clients are asking to see and what HMRC will look at first.

For the agencies that supply public sector end-hirers, the same evidence file does triple duty. It is the file HMRC will ask for under ITEPA Chapter 11. It is the file the end-hirer’s procurement team will ask for under the UK Government Commercial Agency framework requirements. And it is the file the agency’s own board will ask for when sense-checking the labour cost base against the regulatory environment.

Compliance is your asset. Evidenced, every day. The asset is the evidence file the agency holds before HMRC asks for it, not the indemnity it holds after.

OPRaaS Limited (On-Pay-Roll-as-a-Service) is approved on the UK Government Commercial Agency (formerly Crown Commercial Service) frameworks including RM6310 Audit & Assurance Services (Lots 2 & 4), RM6219 Learning & Training Services DPS and RM6237 Learning & Training Services DPS. Your next step, as the April 2026 regime settles in, is a thirty-minute scoping call to look at the umbrella PSL, the JSL evidence file you would want HMRC to see, and the supply-chain assurance pattern the OPRaaS VCD platform puts around both.

Compliance is your asset. Evidenced, every day.

Drawing on the ContractorUK commentary “Why JSL indemnity clauses putting umbrella contractors on the hook could be a PR disaster”, and on the Joint and Several Liability regime under ITEPA Chapter 11 coming into force on 6 April 2026.