The UK government is once again being urged to regulate umbrella companies after it was revealed that a non-compliant company is set to escape repaying millions owed to HMRC by entering into a pre-pack administration.
Exchequer Solutions, an umbrella firm, entered administration on July 15, 2024, and is facing an unpaid tax liability exceeding £15 million. A filing with Companies House showed that the company’s assets were sold to a “connected party” on the same day as part of a pre-pack administration arrangement. This connected entity, Exchequer Contracts, was founded in July 2022 and shares a director with Exchequer Solutions. The 2023 financial report of Exchequer Solutions describes it as the parent company of Exchequer Contracts.
The pre-pack administration was managed by insolvency practitioner Leonard Curtis, and included details in a report published on Companies House on September 4, 2024. The report indicates that Exchequer Solutions went into administration with nearly £7.5 million available to pay its creditors, including HMRC, making it unlikely that the tax agency will recover the full sum owed.
The report also notes that none of the creditors were consulted regarding the pre-pack administration plan, as there were fears that consulting them might prompt them to intensify efforts to recover their debts. “Consulting the general body of creditors, including HMRC, prior to administration could have led to creditors accelerating legal actions or discontinuing services, impacting the value of the company’s assets and harming the business’s ability to continue trading,” the report explained.
Highlighting a disconnect between legislation and corporate law, former credit services director Eddie Pacey commented to Computer Weekly, “This situation underscores a significant need for reform in UK company and insolvency laws. It’s astonishing how much HMRC loses under current regulations and how easily directors can manipulate circumstances to avoid accountability.” Computer Weekly reached out to HMRC for a comment but was informed that the organization cannot discuss individual cases, and a representative from Leonard Curtis also declined to provide commentary.
In a discussion with Computer Weekly, tax consultant Ray McCann expressed that although HMRC isn’t making public statements, the agency is likely taking steps behind the scenes to reclaim the owed funds. “I expect HMRC is weighing all options available due to the sums at stake and the fact that the directors are continuing their operations under a new company name,” he said.
HMRC’s investigation of Exchequer Solutions commenced in 2015, focusing on how the firm managed contractor expense taxation. According to the administrator’s report, Exchequer Solutions believed that its contractors were not liable for income tax or National Insurance contributions on expenses they claimed, due to the nature of their employment.
The report detailed that the umbrella model employed individuals as employees rather than contractors, leading Exchequer Solutions to understand that each worker remained continuously employed under an overarching contract, thus allowing them to reimburse expenses without the deduction of PAYE or NICs.
In 2015, HMRC concluded its investigation, determining that Exchequer Solutions owed £11.9 million in unpaid income tax and NICs. Following unsuccessful appeals against this claim in the First-Tier and Upper-Tier Tribunals, the company faced a deadline of July 2024 to settle the owed amount. In light of the tribunal’s rulings, Exchequer Solutions sought legal counsel in February 2024 to pursue a claim for professional negligence against the unnamed advisor who had previously assured them of compliance.
As the arrears continued to accrue interest, documentation from Leonard Curtis indicated that Exchequer Solutions needed approximately £15 million to resolve its tax liabilities. The firm sought advice on its trading future in May 2024 and was subsequently placed into administration two months later. Despite the option for a Time To Pay agreement with HMRC, the company opted against this route, as cash flow forecasts suggested it could not meet its obligations.
Amid the HMRC investigation, Exchequer Solutions became affiliated with the Freelance and Contractor Services Association (FCSA) in May 2020, an industry body that accredits compliant umbrella companies. The FCSA previously informed Computer Weekly that Exchequer Solutions maintained membership because the investigation focused on tax years before the company achieved compliance accreditation. In a statement, FCSA CEO Chris Bryce confirmed awareness of Exchequer Solutions’ situation and clarified that the company is no longer part of the association.
Dave Chaplin, CEO of ContractorCalculator, emphasized that this case underscores the urgent need for statutory regulation of umbrella companies. This topic has been on the UK government’s agenda since at least 2017, following the introduction of IR35 public sector reforms, which resulted in a significant increase in contractors opting for umbrella company arrangements.
Cross-party MPs have consistently highlighted concerns about the unregulated umbrella company market, suggesting that it has enabled firms to serve as front operations for tax avoidance schemes, leaving many contractors to face dire financial repercussions. “This case further emphasizes the necessity for government regulation of the umbrella sector to guarantee compliance throughout the supply chain; self-regulation has proven ineffective,” one MP commented.
After mentioning the previous Conservative government’s initiatives, the MP urged the new Labour administration to finalize the ongoing consultation process and take decisive action against non-compliant practices.
Similarly, Qdos CEO Seb Maley articulated the case’s implications, noting the importance of the new government fulfilling a commitment to regulate the umbrella industry. “Given the billions flowing through this sector and the multitude of individuals and businesses involved, it is essential that umbrella workers feel secure in their tax compliance,” he stated.
The Department for Business and Trade, which is overseeing the initiative for regulating umbrella companies, was contacted by Computer Weekly for an update on the process. A spokesperson affirmed, “We have committed to tackling non-compliance in umbrella companies and are actively evaluating next steps as part of our ambitious agenda to enhance workers’ rights.”