HM Revenue & Customs has fired a fresh warning shot at Britain’s flexible workforce, urging an estimated 700,000 umbrella workers, and the agencies and end-clients that engage them, to steer well clear of a rapidly growing scheme that claims, falsely, that personal IOUs can be used to settle a tax bill.

In a formal issue briefing published this month, the tax authority confirmed it has seen a sharp uptick in attempts to discharge PAYE and other liabilities using so-called ‘Bills of Exchange’. Promoters, many of them linked to the recruitment and payroll sectors, are marketing the arrangements as a legitimate, and in some cases, brazenly, as a government-endorsed, route to wiping out a tax debt.

They are nothing of the sort.

“HMRC does not accept Bills of Exchange against a tax liability,” the department said bluntly, adding that Organised Crime Groups are “particularly active” in the temporary labour space where the schemes are being aggressively pitched.

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 another to pay an agreed sum to them or to a third party on demand or at a fixed future date — the original mercantile ‘IOU’.

Crucially, even a properly drafted Bill carries no obligation on the recipient to accept it as payment. As HMRC reminds anyone tempted to try, “the recipient has no legal obligation to accept it”. The tax authority has made clear that it will not — and never has — accept a Bill of Exchange against a tax liability.

How the scam works

According to HMRC, the playbook used by promoters is depressingly familiar to anyone who has tracked the procession of tax avoidance schemes named and shamed in recent years. The pitch typically rests on four pillars:

A claim that a Bill of Exchange can legally settle a debt with HMRC, in place of cash.
Assurances that workers can sidestep PAYE or other employment tax obligations using the arrangement.
A hefty fee, sometimes wrapped up as a ‘membership’ or ‘administration’ charge, to join or operate the scheme.
Misleading suggestions that the model is HMRC-compliant or, more outrageously, government-backed.

Variations on the theme reference money orders, Public Trusts, Merchant Law and Negotiable Instruments, pseudo-legal language designed to give a thin veneer of sophistication to what amounts to a refusal to pay.

Why this matters for sme owners

For the small and medium-sized businesses that make up the backbone of the UK economy, the risks extend well beyond the individual workers being targeted. With incoming rules from April 2026 making recruitment agencies and end-clients jointly and severally liable for PAYE where an umbrella company sits in the labour supply chain, SMEs that engage contingent workers will be in the firing line if non-compliance is found further down the chain.

Put bluntly, a hospitality group using agency staff, a logistics firm bringing in temporary drivers, or a professional services partnership hiring through an umbrella could end up footing the bill if a Bill of Exchange scheme is later unwound, even if the directors never knew it existed.

Seb Maley, chief executive of compliance specialist Qdos, said the warning was a timely reminder of how exposed the supply chain has become.

“HMRC’s warning highlights the very real dangers that tax avoidance schemes continue to pose, not just to the some 700,000 people that work through umbrella companies but also the businesses that engage them,” he said.

“Bills of Exchange are marketed as legitimate, or even falsely HMRC-approved, despite being anything but. And the truth is, they can leave anyone who uses them with massive tax bills, penalties and years of uncertainty.”

A recurring theme

The Bills of Exchange alert is the latest in a long line of HMRC interventions against schemes targeting the contractor and umbrella market. As the Institute of Chartered Accountants in England and Wales has noted, the recurrence of these models, repackaged with new language but the same flawed mechanics, points to a stubborn problem at the lower end of the labour supply chain.

It also lands at a moment when IR35 and broader off-payroll rules continue to weigh heavily on Britain’s freelance economy. With tax pressures already cited by contractors as their single biggest concern, the proliferation of dubious ‘solutions’ promising to ease the burden is hardly surprising — but the consequences for those drawn in can be severe.

What businesses should do now

Owner-managers and finance directors engaging temporary labour are being urged to:

Audit their supply chain and confirm the tax status of every umbrella provider in use.
Refuse to deal with any operator promoting Bills of Exchange, money orders or ‘negotiable instrument’ structures as a means of settling tax.
Encourage workers to check payslips against HMRC’s own pay-checker tool, and to flag anything that looks too good to be true.
Take advice from a qualified tax professional, not an agency salesperson, before signing up to any payroll model that promises unusually high take-home pay.

HMRC has urged anyone already caught up in a Bills of Exchange arrangement to come forward and make a disclosure, warning that those who do not act may face enforcement action, interest, penalties and even insolvency proceedings.

For SME owners, the message from the Revenue could hardly be plainer: if the promoter says it’s a clever way around the rules, it almost certainly isn’t.

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HMRC warns 700,000 umbrella workers over ‘bills of exchange’ tax avoidance scam