HM Revenue & Customs has issued a new warning to Britain’s flexible workforce, urging around 700,000 employees, as well as the agencies and end clients they work with, to avoid a fast-growing scheme that falsely claims IOUs can be used to pay tax.
In an official press conference published this month, the tax authority confirmed that it had made significant progress in efforts to issue PAYE and other debts using so-called ‘Bills of Exchange’. Promoters, many of whom are connected to the employment and payroll sectors, market the arrangements as legitimate, and in some cases, defiantly, as a government-sanctioned way to write off tax debt.
They are nothing of the sort.
“HMRC does not accept Bills of Exchange against tax debt,” the department said flatly, adding that Organized Crime Groups “operate mainly” in the temporary labor market where schemes are carried out violently.
What is a ‘bill of exchange’?
The instrument itself is a creature of Victorian commerce, codified in the Bills of Exchange Act 1882. In plain terms, it is a written note from one party requiring the other to pay an agreed sum to him or her to the other party on demand or at a fixed future date — a true merchant ‘IOU’.
Most importantly, even a well-written Bill is not binding on the payee to accept it as payment. As HMRC reminds anyone tempted to try, “the receiver is under no legal obligation to accept it”. The tax authority has made it clear that it will not – and has never – accepted the Bill of Exchange against the tax liability.
How the scam works
According to HMRC, the playbook used by lobbyists is depressingly familiar to anyone who has followed the procession of tax avoidance schemes invented and discredited in recent years. A pitch is usually based on four pillars:
- A claim that a Bill of Exchange can legally settle a debt with HMRC, instead of cash.
- Guarantees that employees cannot avoid paying PAYE or other employment tax obligations using the scheme.
- A large fee, sometimes wrapped up as a ‘membership’ or ‘administrative’ fee, to join or use the program.
- Misleading suggestions that the model is HMRC compliant or, at the extreme, government supported.
Variations on the theme of reference money orders, Public Funds, Merchant Law and Non-Negotiable Instruments, fake legal language designed to give a hint of the complexity of what constitutes a refusal to pay fee.
Why this is important for sme owners
For the small and medium-sized businesses that form the backbone of the UK economy, the risks extend beyond the target workforce. Since there are rules coming in from April 2026 that make recruitment agencies and clients ultimately jointly and severally responsible for PAYE when the umbrella company sits in the labor supply chain, SMEs involving the workers involved will be in the firing line if non-compliance is found further down the chain.
In short, a tour group that uses agency workers, a transportation company that brings in temporary drivers, or a professional services partnership that hires through an umbrella could end up footing the bill if the Bill of Exchange program expires later, even if the directors didn’t know it existed.
Seb Maley, chief executive of compliance specialist Qdos, said the warning was a timely reminder of how to expose the supply chain.
“HMRC’s warning highlights the real dangers that tax avoidance schemes continue to have, not only for the 700,000 people who work for private companies but also for the businesses involved,” he said.
“Bills of Exchange are sold as legitimate, or falsely endorsed by HMRC, despite the fact that there is none. And the truth is, they can leave anyone using them with huge tax liabilities, penalties and years of uncertainty.”
A recurring theme
The Bills of Exchange warning is the latest in a long line of HMRC interventions against contractor-directed schemes and the umbrella market. As the Institute of Chartered Accountants in England and Wales has noted, the re-emergence of these models, repackaged in new language but with the same flawed mechanics, points to a persistent problem at the bottom of the labor supply chain.
It also comes at a time when IR35 and wider exemption rules continue to weigh heavily on Britain’s private sector economy. With tax pressures already cited as a major concern by contractors, the proliferation of dubious ‘solutions’ promising to ease the burden is not surprising – but the consequences for those involved can be dire.
What businesses should do now
Owner managers and financial directors acting on a temporary basis are urged to:
- Check their supply chain and verify the tax status of all umbrella suppliers used.
- Refuse to deal with any business operator who promotes Bills of Exchange, money orders or ‘negotiable instrument’ structures as a means of paying tax.
- Encourage employees to check payslips against HMRC’s paycheck tool, and flag anything that looks too good to be true.
- Take advice from a qualified tax professional, not an agency salesperson, before signing up for any payroll model that promises unusually high take-home pay.
HMRC has urged anyone already caught up in the Bills of Exchange scheme to come forward and disclose, warning that those who do nothing could face enforcement action, interest, penalties and repayment procedures.
For SME owners, the message from Income will not be clear: if the promoter says it is a smart and compliant approach, it probably isn’t.
