Thousands of IT contractors in the UK face hefty tax bills due to schemes that distort salary payments. The government is now actively working to tackle these “contrived” arrangements. During the Spring Statement of 2025, they revealed plans to consult on how to address the promoters of tax avoidance and support those vulnerable to these schemes.
The consultations focus on empowering HMRC with more authority, including stronger penalties to disrupt the business models of those promoting these schemes. They want public input on how to enhance these measures, with the consultation open until June 18, 2025. The consultation document highlights that a persistent group of promoters exploits loopholes, harming both public finances and the individuals engaging with their schemes. Many end up with significant tax liabilities, in addition to the high fees they’ve already paid.
The government is also focused on targeting umbrella companies that act as fronts for tax avoidance. These companies often lure contractors with appealing but unrealistic take-home pay offers. To combat this, they plan to hold employment agencies accountable for ensuring that the correct amount of PAYE is paid when umbrella companies are part of the supply chain. This initiative, introduced in the Autumn Budget of 2024, is projected to generate £895 million in additional tax revenue by making it tougher for these companies to avoid compliance.
Another facet of the consultations aims to strengthen HMRC’s ability to act against tax advisors that enable non-compliance for their clients. While most UK tax advisors maintain high standards, a minority fall short and contribute to the tax gap. HMRC is considering imposing stricter penalties on these rogue advisors and is looking for feedback on whether they should notify professional bodies about any concerning behavior from their members. They’re particularly interested in hearing from accounting firms, tax advisors, payroll professionals, and insolvency practitioners, with this feedback period ending on May 7, 2025.
Chancellor Rachel Reeves also announced plans to use artificial intelligence to tackle a £500 million tax gap created by wealthy individuals exploiting non-compliant offshore tax schemes. This initiative will involve recruiting experts in private wealth management to harness AI and advanced analytics for identifying those hiding their wealth.
Crawford Temple, CEO of Professional Passport, commented on the consultations by expressing that while they are well-intended, HMRC should have acted sooner. He pointed out that HMRC has access to vast data regarding these schemes that could have been used to mitigate tax avoidance much earlier. Instead, they’ve been reactive, allowing tax avoiders to thrive. Temple stressed that the slow enforcement actions have resulted in significant losses for both workers and the Treasury. He emphasized the need for decisive action rather than prolonged analysis.