Hidden exposure in defence delivery models

Homeland May 13, 2026

Following the introduction of Joint and Several Liability rules that change how financial and compliance risk is distributed across defence labour supply chains, Hannah Fendall, Head of Tax at Morson Group, explains why visibility, governance and accountability are becoming increasingly important in contingent workforce models.

Hannah Fendall

Defence programmes are built on access to highly specialised, often security-cleared talent, deployed at pace through complex labour models. That operating model has long enabled flexibility and delivery against tight timelines. However, the introduction of Joint and Several Liability (JSL) rules in April places new pressure on how those models function in practice.

The rules fundamentally change where financial responsibility can sit when PAYE and National Insurance are not correctly accounted for within labour supply arrangements. Where an umbrella company fails to meet its obligations, HMRC can now recover unpaid amounts, along with interest and penalties, from other parties in the chain. In many cases, that exposure will sit with the organisation closest to the end client, which, in defence environments, is often the prime contractor. Liability applies automatically where underpayments arise, and HMRC makes no exceptions or accepts any mitigation.

A shift from delegation to accountability

Defence delivery structures typically involve multiple layers of agencies, consultancies, and intermediaries. While payroll activity can sit several tiers removed from the organisation delivering the programme, the introduction of JSL means the consequences do not. Errors or non-compliance at any point in the chain can now translate directly into financial and operational exposure for upstream organisations.

This represents a clear shift. Responsibility for managing workforce engagement may still be distributed across multiple parties, but accountability for compliance is no longer confined to those directly administering payroll. Offshore arrangements or complex structures do not remove the exposure either, as they are explicitly disregarded under the legislation.

Why defence programmes are particularly sensitive

The defence sector’s reliance on contingent labour intensifies this challenge. Skilled individuals are frequently engaged through agency networks that prioritise speed and flexibility, often supported by umbrella companies operating further down the chain. While effective from a delivery perspective, this can create distance between the organisation commissioning the work and the mechanisms through which individuals are paid.

Under previous rules, that distance limited visibility. Under JSL, it creates exposure. Where compliance is not robust, the implications extend beyond financial liability. HMRC intervention can disrupt delivery, divert internal resources, and place pressure on programmes where continuity and timing are critical. In an environment where contractual performance and trust underpin long-term relationships, the consequences are far-reaching.

What this means in practice

The expectation is no longer that organisations rely on contractual assurances, but that they understand how their workforce models operate in reality. That includes having clarity over how funds move through the chain, how deductions are calculated, and who ultimately carries out payroll responsibilities.

This requires a more deliberate approach to oversight. Before engaging any provider, organisations should establish a clear understanding of how engagement models function in practice, including how workers are paid and how compliance is maintained. Where this cannot be clearly articulated, it should be treated as a point of concern.

Oversight must also continue beyond initial engagement. Risks can emerge over time as supply chains evolve, new intermediaries are introduced, or commercial pressures change behaviour. Regular review mechanisms, extending beyond immediate suppliers, are essential to maintain confidence in how arrangements are operating.

It is also important to critically assess commercial propositions that appear to offer disproportionate advantage, whether through reduced costs or enhanced take-home pay. In compliant models, margins are inherently constrained, and outcomes that appear unusually favourable can indicate underlying issues.

For many organisations, achieving this level of visibility requires a more structured approach to workforce governance. This may involve consolidating supplier networks or introducing additional oversight mechanisms that provide clearer insight into how labour models operate in practice. Whether delivered through strengthened internal controls or with the support of a specialist partner, the priority is the same: ensuring transparency, consistency, and accountability across the full delivery model.

A broader shift in expectations

JSL forms part of a wider direction of travel in regulation. Alongside increased focus on the Corporate Criminal Offence (CCO) legislation and the failure to prevent fraud offences, there is a clear expectation that organisations take ownership of compliance across the entirety of their workforce ecosystem.

For defence organisations, this is not simply a question of tax governance; it is a question of operational resilience. Ensuring visibility, control, and accountability across labour models is now integral to protecting programme delivery, maintaining client confidence, and sustaining long-term commercial positions.

Robust governance is no longer a supporting function. Under JSL, it is central to how defence programmes are delivered.