UK Spring Statement 2025: tax anti-avoidance rules with criminal sanction target staffing supply chain

The UK chancellor, Rachel Reeves, in her spring statement in March outlined the government's plans to introduce further measures designed to close the "tax gap" – the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. The measures aim to raise a further £1 billion by the end of the forecast.

These latest anti-avoidance proposals would criminalise hirers, staffing companies, umbrella companies and other intermediaries who "promote" tax avoidance arrangements and fail to comply with the Disclosure of Tax Avoidance Scheme (DOTAS) regime, which, broadly, requires certain types of scheme to be notified to HMRC before they are implemented.

The problem that this addresses is that those who fail to comply with DOTAS are only exposed, at the moment, to civil liabilities. There is a feeling in government that DOTAS has, therefore, been ignored by many, allowing tax-avoidance arrangements in the staffing supply chain to be widely promoted in a relatively unchecked way.  

HMRC action

Staffing supply chains are addressed in the background papers issued at the time of the spring statement, which included consultations on closing in on promoters of marketed tax avoidance and on enhancing HMRC's ability to tackle tax advisers facilitating non-compliance.

Both consultations point to HMRC action being particularly targeted at those involved in contingent worker supply chains. The example given in the consultation on promoters involves complex tax-avoidance schemes that are promoted to and implemented via staffing companies and umbrella companies.   

'Tax avoidance': the staffing context

The proposals define tax avoidance as "bending the tax rules to seek to gain a financial advantage never intended by Parliament. It often involves contrived or artificial transactions that serve little or no purpose, other than seeking to reduce the amount of tax that is paid." They also confirm that the avoidance market is dominated by schemes that claim to avoid Income Tax and National Insurance contributions (NICs) on a worker’s earnings. This can involve paying workers payments which are claimed to be not taxable, such as payment in the form of a loan or otherwise paying someone off payroll – that is without PAYE or NICs or both being fully applied – when they should be paid on payroll.

In any circumstances where an individual is receiving payments other than through payroll with tax deductions, legally privileged advice should be sought to ensure that this is the correct treatment and, if not, whether the arrangements might potentially be treated as tax avoidance.

No doubt certain "classic" arrangements that HMRC has long disliked, such as mini-umbrella company arrangements, would also be caught to the extent they are not already unlawful tax evasion.

Another type of scheme picked out by HMRC in the consultations is where workers are encouraged to submit claims for repayments of income tax; for example, for work-related expenses, without proper checking of whether the workers are entitled to a repayment.

The key point is that the "tax avoidance" that the new measures will attack does not have to involve tax fraud or criminal tax evasion, which generally need to involve an intention to deceive HMRC and is already criminalised.  Whether or not an arrangement involves bending the rules or something artificial or contrived (such that it is tax avoidance subject to the proposed new regime) will depend on the specific facts. 

Where an individual personal service company (PSC) contractor works for a small hirer and simply thinks they are outside IR35, then that in itself may not be tax avoidance. An umbrella company or staffing company that makes a simple and innocent error in a PAYE or NICs calculation may again not be involved in tax avoidance. However, it could well be tax avoidance if there is some other element: for example, if the PSC contractor is involved in marketed IR35 avoidance arrangements structured in a certain way or the relevant umbrella arrangements involve structured tax avoidance arrangements. This would bring the new criminal offence into play for anyone considered to be a promoter of relevant arrangements, and in some cases the users of the scheme may be liable.

DOTAS non-compliance criminalised

The new measure would criminalise the failure to comply with DOTAS regime. The disclosure regime under DOTAS should be an important weapon in HMRC's armoury – providing it with an early warning of schemes it can then close down and alerting anyone looking to use the scheme that it is an avoidance scheme. But there is a feeling that the proliferation of tax avoidance schemes, including in some parts of the umbrella market, is because DOTAS is felt to lack teeth, as failure to notify these schemes has just attracted civil sanctions.

HMRC therefore wants to go further, including introducing criminal sanctions for those involved in marketing or promoting tax avoidance schemes, if the schemes have not been notified to HMRC under the DOTAS regime. The consultations propose sanctions consisting of unlimited fines and two-years imprisonment. This would complement (and not replace) the existing civil sanctions for failing to notify under DOTAS. Clearly the government hopes this will make advisers and operators of relevant arrangements think twice before offering or using relevant structures without notifying HMRC first.

Who would be caught as a "promoter'" of tax avoidance in a staffing supply chain context? Organisations set up to offer "tax advisory services" will obviously be caught by the new criminal offence. So would any other person who "is responsible to any extent" for the design of the proposed arrangements and who makes a firm approach to another person about it or any person "responsible to any extent" for the design, organisation or management of the arrangements. 

These tests might catch intermediaries or hirers who help workers to sign up to schemes. In some cases, staffing companies and other users of the schemes may be liable. Even providers of tax-related insurance or indemnity arrangements which effectively stipulate use of particular commercial models as a condition of the insurance or indemnity may need to be careful about how they set out conditions relating to the insurance or indemnity.

Stop notices

The consultations propose the introduction of a universal stop notice and promoter action notice (PAN). The universal stop notice proposed under the consultations would be an extension of the existing Stop Notice and is designed to help schemes to be shut down more quickly.

The PAN would require individuals or businesses to stop providing products or services to promoters and enablers of tax avoidance where those products or services are connected to the promotion of avoidance. The consultation envisages that relevant businesses for PANs would include staffing companies.

Stronger powers to probe promoters

HMRC is looking to have stronger information powers to investigate those who own and control promoter organisations. It wants to make it easier to identify individuals who lie behind the promotion of avoidance schemes through new highly targeted obligations and stronger information powers. The example given in the consultation involves staffing companies and umbrella companies.

The government proposes to introduce a targeted "connected parties information notice" to compel persons that HMRC suspects to be connected to the promotion of a marketed tax avoidance scheme to provide relevant information and documents (although there would be a carve-out for material subject to legal professional privilege).

Increased prosecutions

The spring statement in addition makes clear that the government is going to take stronger measures generally against tax fraud, which includes expanding its counter-fraud capability with the aim of increasing the number of charging decisions for the most serious fraud by 20% by 2029-30.

The statement references that this will include tackling fraud "facilitated by those in large corporations". This is a reference to the Criminal Finances Act 2017 (CFA) which introduced corporate criminal offences for failing to prevent the facilitation of tax evasion. This echoes earlier statements made by the Labour Party during the election period. It is the clearest signal yet that the first CFA prosecution may be seen in due course – and that this is likely to be reserved for a high-profile corporate to establish a "strong deterrent". Bearing in mind how focused HMRC appears to be on tax evasion in contingent worker supply chains, it may well be that this is targeted at a user of a labour supply chain involving tax fraud, forcing those users to take much more seriously the need to take "reasonable procedures to prevent the facilitation of tax evasion" (having those procedures in place being the best defence to CFA prosecutions).

US-style whistleblower scheme

HMRC will launch a reward scheme later in 2025 targeting serious non‑compliance in large corporates, wealthy individuals, offshore and avoidance schemes. This will reward informants with compensation linked to a percentage of any tax taken as a result of their actions. It will be modelled on the successful US and Canadian schemes. 

Many compliant hirers and staffing and umbrella companies face the challenge of having to compete with non-compliant labour suppliers that can supply at much lower prices (or attract workers more easily with promises of higher take-home pay). This has often led to compliant companies losing market share to competitors involved in tax avoidance or who use suppliers involved in tax avoidance. Disgruntled "compliant" organisations will likely welcome this whistleblower regime and lodge reports in the hope that it closes down some of these non-compliant offerings.

The challenge for HMRC will be how to sift through the many reports they receive. The equivalent US scheme was launched many years ago but only started giving a good return to the US Internal Revenue Service once dozens of specialist tax inspectors were assigned to reviewing the reports. HMRC may not have the capacity for this yet. But it would be wrong to count on HMRC not taking any action – there is likely to be a strong desire to "make an example" of some tax avoiders by using this new criminal regime.

AI to speed up compliance

The consultations confirm that HMRC intends to use artificial intelligence (AI) to extend and speed up its counter avoidance policy and risk and compliance functions. AI offers an enhanced ability to process data sets together with increased information powers, which will help HMRC close in on promoters of tax avoidance schemes and others involved in the tax avoidance.

Osborne Clarke comment

New legislation to tackle umbrella non-compliance has already been announced and is due to be introduced from April 2026. That is separate from the new regimes outlined. The new legislation is likely to make staffing agencies increasingly wary of engaging with umbrella companies, particularly where there is a lack of transparency around how workers are paid. The government's clear intention and expectation is that this new umbrella  legislation will greatly reduce opportunities for promoters to sell tax avoidance schemes using umbrella companies.

This will be especially so if the umbrella legislation is introduced alongside these anti-avoidance measures announced on 26 March which, should they become law, will see staffing companies, their clients, banks (including invoice finance providers) and umbrella companies potentially in receipt of  universal stop notices and PANs with criminal liability for failing to comply.

The intention is that those promoting and operating tax avoidance schemes, including those who pay contingent workers, will be driven out of the UK umbrella market. The likely impact of current US trade policies on the cost of UK government borrowing, together with a wish not to stifle economic growth, suggest that the chancellor does not have many better options to increase government revenues than more vigorous attacks on tax avoidance.

However, it remains to be seen whether any of these measures will help HMRC clamp down on contingent worker misclassification, especially where intermediaries – umbrella companies or otherwise – purport to engage contingent workers on a self-employed basis.

Unless and until the government tackles the lack of a clear definition of what is and what is not self-employment, potential for tax avoidance in the contingent worker market will remain.