TAX & CONTRACTING NEWS
Contractor insurer Qdos has reported HMRC is issuing letters to contractors it believes have worked via tax avoidance schemes, demanding unpaid tax, sometimes running to six figures. The twist? In at least one case, the taxman previously told the same worker they had nothing to worry about. With Joint and Several Liability now in force, contractors might expect to be shielded. They are not. Here is what every flexible worker needs to know.
Imagine receiving a letter from HMRC, not for the first time, but arriving on your doormat years after the same authority told you that you were in the clear. That you were not, in fact, operating through a tax avoidance scheme. That you had nothing to worry about. Now, the taxman is back, demanding tens — or even hundreds — of thousands of pounds in unpaid tax. This is not a hypothetical. It is happening to a contractor being supported by compliance specialist Qdos.
In a letter received by one taxpayer being supported by compliance specialist, Qdos, a worker is being told that because their arrangements are not covered by the Loan Charge review, they remain liable for unpaid tax arising from participation in what HMRC considers to be a tax avoidance scheme. This is despite HMRC previously confirming that this worker had not been operating through one of these schemes during a formal check.
What’s happening?
HMRC is writing to taxpayers it believes have previously operated via tax avoidance schemes, warning that their arrangements fall outside the scope of the government’s Loan Charge review and that outstanding tax must be settled.
In one case brought to Qdos’s attention, HMRC had previously confirmed, formally, that this individual had not been working through such a scheme. Fast forward a year or two, and the tax office has reversed that position.
HMRC had previously said this worker had nothing to worry about. Fast forward a year or two, and the tax office returns with a letter demanding tax that this person is said to have avoided. How do people know where they stand?
— Seb Maley, CEO, Qdos
A problem years in the making
To understand why this is happening now, it helps to understand the scale of the problem HMRC is belatedly trying to address. The government estimates that umbrella companies were used to engage at least 700,000 temporary workers in the UK in 2022–23 alone.
Of those, at least 275,000 were engaged by umbrella companies that failed to comply with their tax obligations. Approximately £500m was lost to disguised remuneration tax avoidance schemes in that year; almost all of it facilitated by umbrella companies.
Yet despite the scale of this problem being visible to regulators for years, umbrellas remained largely unregulated. A compliant umbrella and a rogue one could be virtually indistinguishable to a contractor placed by an agency. Both looked the same on paper. Both promised employment through a named company.
The difference? One was routing pay through convoluted offshore loan structures to avoid income tax with National Insurance often invisible to the worker.
HMRC has long acknowledged that it uses real-time data to identify people who may have entered tax avoidance schemes, writing to those identified within two months to help them exit before large bills accumulate. That, at least, is the theory. In practice, as the Qdos case shows, the system has proved capable of first reassuring workers that everything is fine and then, years later, changing its mind entirely.
Why is HMRC pursuing workers now?
The timing of this enforcement wave is not coincidental. It corresponds with a wider political drive to claw back revenue lost to disguised remuneration, and with the ongoing work following the government’s 2025 Loan Charge review, led by Ray McCann, a former President of the Chartered Institute of Taxation.
That review, commissioned in January 2025, produced a new settlement opportunity for those with outstanding Loan Charge liabilities — covering disguised remuneration scheme use between 9 December 2010 and 5 April 2019. But here lies the trap for many contractors: arrangements that fall outside these dates, or that HMRC has classified differently, are explicitly excluded from the review’s scope and its associated relief. Those workers receive no settlement opportunity. They receive a demand.
HMRC’s own GOV.UK Loan Charge review page makes this explicit: the review covers only schemes within specific legislative parameters. Workers whose arrangements sit outside those boundaries reportedly face the full force of HMRC’s standard enforcement regardless of what they may previously have been told.
Amounts which have been included in a contract settlement entered in to before 1 June 2021 are not loan charge amounts.
The relevance of 1 June 2021 is that settlements entered in to before this date were under HMRC’s previous settlement terms and could not have included loan charge liabilities.
Customers settling before this date settled to prevent the loan charge arising, where it otherwise would have applied to their outstanding DR loans at 5 April 2019.
This means that customers will not be eligible for the settlement opportunity where all of their DR liabilities were included in a contract settlement entered in to before 1 June 2021, regardless of whether those amounts have been paid in full.
Customers who agreed a contract settlement including loan charge liabilities after 1 June 2021 will be eligible for the new settlement opportunity if those amounts have not been paid in full.
Customers will not be eligible for a settlement opportunity if they have only received income through disguised remuneration (DR) arrangements that are not subject to the loan charge legislation. This is because these customers are not liable to pay ‘loan charge amounts’.
The cost-benefit arithmetic compounds the problem. It has emerged that the government has spent £186m collecting just £44m in tax from individuals impacted by the Loan Charge over the past six years. That is an eye-watering ratio by any measure, and it suggests HMRC is under significant pressure to intensify enforcement rather than accept further shortfalls.
Shouldn’t joint and several liability fix this?
Contractors might reasonably have assumed that the introduction of Joint and Several Liability (JSL) rules — which came into force on 6 April 2026 — would provide them with protection. JSL was, after all, sold partly on exactly that basis: shifting risk away from workers and onto agencies and end-clients.
Under JSL, where an umbrella company fails to pay the correct PAYE or National Insurance, HMRC can now recover unpaid amounts from the recruitment agency in the supply chain, or in some cases from the end client. As one analysis of the legislation puts it, for contractors working via an umbrella,
HMRC wants liability to sit with the supply chain rather than the worker. In theory, this should reduce the risk of contractors being dragged into retrospective tax disputes where an umbrella has gone wrong.
The insufficiently acknowledged caveat is that JSL is prospective, not retrospective. The legislation governs conduct from 6 April 2026 onwards. It does not reach back to earlier years.
Workers who were placed through non-compliant umbrella schemes before that date — including the worker in the Qdos case — remain exposed to HMRC pursuing them directly for historical liabilities under existing law, including under Regulation 72 of the PAYE Regulations, which allows HMRC to transfer liability to an employee in certain circumstances.
As the Low Incomes Tax Reform Group (LITRG) warned in its submission on the draft legislation, HMRC sometimes pursues the worker to make up a tax shortfall even when the worker had no idea anything was wrong. The new JSL framework does not unambiguously close that door for pre-April 2026 obligations.
Chronic systemic failure?
The case Qdos has flagged exposes a deeper, systemic problem. Seb Maley, Qdos’s chief executive, is unsparing in his assessment:
HMRC’s latest action highlights an ongoing issue that has left many flexible workers exposed to huge and unexpected tax bills. While enforcement is clearly intensifying, it also underlines a broader failure to put a stop to these schemes in the first place.
Arguably, it is a fair charge. Thousands of workers entered these schemes not out of deliberate tax evasion but because they were placed through them by recruitment agencies, often without any meaningful disclosure, or because the schemes were actively marketed as compliant.
Some carried HMRC’s own crown branding on their websites (unlawfully). Others claimed — falsely — to be ‘HMRC approved’. The taxman, who does not endorse or approve any intermediary, has been fighting a rearguard action against this fraud for years.
The government has committed to regulating the umbrella industry in 2027, and the new JSL rules — covering roughly 700,000 workers via some 400 umbrella providers and 30,000 agencies — represent the most significant overhaul of the sector in its history. But these are forward-looking measures. For the contractor who received a letter confirming they were clean, only to receive another letter years later demanding payment: the new framework arrives too late.
What must you consider now?
Whether you have received one of HMRC’s demand letters or simply fear you may have been placed through a non-compliant umbrella at some point in your career, there are concrete steps you should take immediately.
If you receive an HMRC letter demanding unpaid tax, you must consider your options. For example, HMRC has confirmed that recipients retain the right to appeal its determination. Before doing anything, you may want to seek specialist tax advice from a qualified professional who understands contractor tax and disguised remuneration. Qdos’s guidance is unequivocal: encouraging immediate payment is HMRC’s position, not your obligation.
Check your current umbrella for warning signs. Qdos has identified the key red flags that should prompt urgent review:
- Promises of take-home pay of 85% or more after tax — if it sounds implausible, it almost certainly is
- Convoluted payment structures, particularly those involving offshore loans or trusts
- Use of HMRC’s crown logo or GOV.UK branding on the provider’s website — intermediaries are not legally permitted to display this
- Claims of being ‘HMRC approved’. HMRC does not approve or endorse any umbrella or intermediary
- Unclear or evasive terms and conditions that make payment structures difficult to understand
What to ask and look for next?
- Check HMRC’s published list of named tax avoidance schemes: the taxman maintains a regularly updated register of blacklisted providers at GOV.UK. Cross-reference any current or past umbrella against it.
- Retain all documentation: contracts, payslips, and any communications with HMRC. That also means including any letters in which HMRC previously confirmed your compliance. If the Qdos case teaches anything, it is that such correspondence may prove invaluable.
DISCLAIMER: This article is for informational purposes only and does not constitute professional advice. Please go to a tax and contractor specialist for guidance on understanding and responding to letters from HMRC
