What Recruitment Agencies Need to Know About HMRC’s New Tax Avoidance Scheme List

Recently, HM Revenue & Customs (HMRC) expanded its list of named tax avoidance schemes, promoters, enablers, and suppliers. This update included several new names, and for the first time, an employment agency was added to HMRC’s new tax avoidance scheme list.

Remedy Recruitment Group was included because it failed to carry out effective due diligence on umbrella companies in its supply chain. HMRC said those umbrella companies were operating a tax avoidance scheme, and staff were paid near the National Minimum Wage with tax deducted, but they also received additional untaxed payments. This case has sent shock waves through the recruitment sector and highlights the importance of proper supply‑chain checks.

Summary of the HMRC’s New Tax Avoidance Scheme List 

• HMRC alleges that Remedy Recruitment Group did not undertake proper checks on umbrella companies supplying labour. As a result, workers were paid through an arrangement that split their pay: part as salary with PAYE and National Insurance Deductions are made, and part of the payment is considered an additional payment with no tax deducted. HMRC’s view is that all money paid to workers should be taxed as normal salary.
  
• Jonathan Smith, HMRC’s director of counter avoidance, noted that the case is the first time a recruitment agency has been named in connection with tax avoidance arrangements. He warned businesses to carry out proper due diligence on their supply chains and not to pass workers to companies using arrangements designed to avoid tax.
  
• The list of additions recently published includes Aura PAYE Limited, Kingsborough Enterprises Limited, Revolve Limited (Isle of Man), Engage Limited (Isle of Man), Acuity Professional Advisers Ltd, Jadecourt Limited, Magna Limited (Isle of Man), Simply PAYE Limited and Eagle Pay Limited.

How do umbrella company schemes operate?

Umbrella companies are employment intermediaries that employ workers on behalf of recruitment agencies and end clients. A policy paper published by HMRC explains that these companies are responsible for paying workers and invoicing the agency or client; the draft legislation will make businesses accountable for Pay As You Earn (PAYE) and National Insurance contributions when they use umbrella companies. 

In the case highlighted by HMRC, under the umbrella companies scheme, they paid workers a salary near the National Minimum Wage with deductions but then paid an additional amount without deducting tax. 

HMRC’s Spotlight 60 guidance warns that some umbrella companies use contrived arrangements to allow agency workers and contractors to keep more of their earnings. HMRC emphasises that these arrangements seldom work and can leave workers owing tax.

Why due diligence for recruitment agencies matter

HMRC’s naming of a recruitment firm underscores the importance of supply‑chain assurance. Government guidance on labour supply chains warns that failing to ensure your labour supply is legitimate can lead to legal, financial and reputational risks. Businesses may become liable for unpaid taxes and National Insurance contributions and could even face criminal prosecution if someone acting on their behalf facilitates tax evasion. To protect your business and workers:

Perform robust due diligence

The HMRC advises agencies to test the credibility and legal compliance of suppliers, customers, and labour providers. Simple checks of immediate suppliers are not enough; exploitation and fraud can hide deeper in the supply chain.

Use the check–act–review model

The due diligence principles recommend assessing risks.

• Check the tax and legal compliance of suppliers.
• Monitor for modern slavery and exploitation.
• When you identify risks, act to mitigate or remove them. Verify directors’ credentials.
• Ensure suppliers operate PAYE correctly.

Know your supply chain length and subcontracting arrangements

Fraudsters often hide in long chains with tight margins. HMRC suggests adding clauses in contracts to require authorisation before subcontracting and prohibit offshore intermediaries. Agencies must ensure any umbrella company supplying workers follows minimum wage rules and HMRC requirements.

APSCo, the Association of Professional Staffing Companies, provides clear guidance on umbrella compliance. It uses external accredited audits. The Recruitment and Employment Confederation (REC) notes that HMRC expects employment businesses to conduct effective due diligence on the supply chain. Long supply chains can expose recruitment businesses to legal, financial, and reputational risks.

New rules from April 2026: joint and several liability

The government is overhauling the umbrella company market. A policy paper published in November 2025 explains that the measure will make recruitment agencies responsible for accounting for PAYE and Class 1 National Insurance contributions on payments made via umbrella companies. 

The legislation, which takes effect on 6 April 2026, will introduce a new chapter into the Income Tax (Earnings and Pensions) Act 2003. It will make employment agencies or end clients jointly and severally liable for PAYE where an umbrella company forms part of the labour supply chain. HMRC will be able to recover unpaid payroll taxes from the agency in the first instance and from the end client if they contract directly with the umbrella company. These changes aim to close the tax gap and protect workers from unexpected tax bills.

For recruitment businesses, the reforms mean that due diligence will no longer be optional. You need to map every labour supply route, assess the compliance of each umbrella company, and keep records proving that PAYE and National Insurance have been properly accounted for. Agencies can choose to bring payroll in-house or work only with accredited umbrella companies.

How We Can Help Recuritment Agencies Stay Compliant

At Apex Accountants, we specialise in helping recruitment agencies and umbrella companies navigate the complex worlds of tax compliance and supply chain assurance. Our team understands the sector’s unique challenges and provides tailored support to protect your business.

We offer:

• Supply‑chain and due‑diligence reviews

We evaluate your current suppliers, verify their tax compliance, and provide clear recommendations for mitigating risk. Our reviews follow HMRC’s check–act–review principles.

• PAYE and National Insurance compliance

We ensure your payroll processes meet HMRC requirements and prepare you for the joint and several liability rules taking effect in April 2026.

• Umbrella company vetting

We help you select compliant umbrella partners by checking their accreditation, reviewing contracts, and identifying any disguised remuneration arrangements.

• Staff training and policy development

Our experts provide training in due diligence, modern slavery detection and contract clauses to safeguard your business.

• Support during HMRC investigations

If HMRC has concerns about your supply chain, we act as your advisers, liaising with HMRC and helping you respond effectively.

Conclusion

HMRC’s decision to name a recruitment firm on its tax avoidance list marks a decisive moment for the staffing industry. It shows that due diligence is essential, and agencies must understand the risks in their labour supply chains. By carrying out proper checks and getting ready for the 2026 joint liability rules, recruitment businesses can protect themselves, their workers, and their clients from the legal and financial consequences of tax avoidance. As rules change, it’s important to stay ahead and compliant. Apex Accountants is here to help you manage these changes and keep your business safe and successful.

Contact us today to learn how we can support your business in navigating these important changes.

FAQs

Why does HMRC publish a list of named tax avoidance schemes? 

The list is intended to warn taxpayers about schemes that HMRC believes do not work and to discourage promoters. HMRC notes that the published list is not comprehensive; there are schemes that HMRC cannot yet name. Being absent from the list does not mean a scheme is safe.

How can I tell if an umbrella company is compliant? 

Check that the company operates PAYE properly and does not offer schemes involving loans or non-taxable payments. Ensure the company is accredited by recognised bodies (such as FCSA, SafeRec, or APSCo) and request written confirmation of tax compliance. HMRC’s due diligence guidance advises you to verify the directors, check modern slavery statements, and ensure the supplier reports to HMRC.

What should a recruitment agency do if it discovers a non‑compliant umbrella company?

We should cease using the provider and report it to HMRC. Document all checks and corrective actions. Agencies are advised to include clauses in contracts to prevent unauthorised subcontracting and offshore intermediaries. If you or your workers have used a tax avoidance scheme, HMRC urges you to contact them to settle your affairs.

What happens after April 2026? 

From 6 April 2026, HMRC will pursue recruitment agencies for unpaid PAYE and National Insurance if they use a non-compliant umbrella company. End clients will become liable if no agency is in the supply chain. Agencies must prepare by reviewing supply chain due diligence processes, training staff, and deciding whether to operate payroll themselves.