Criminal Liability for Tax Avoidance in Staffing Supply Chains: What Recruiters Must Know
The Chancellor’s Spring Statement brought more than just economic forecasts — it sent a clear message to hirers, umbrella companies, and recruitment agencies: non-compliance with tax avoidance rules is now moving into the realm of criminal law.
These proposals are part of a larger push to narrow the “tax gap” — the difference between tax owed and tax paid — and the staffing sector is firmly in HMRC’s sights.
Here’s what you need to know if your business sits anywhere within the labour supply chain.
The Direction of Travel: From Civil to Criminal
Until now, staffing businesses and umbrella companies that failed to notify tax schemes under the Disclosure of Tax Avoidance Schemes (DOTAS) regime were only exposed to civil penalties.
That’s about to change.
The government intends to criminalise failure to comply with DOTAS, including issuing unlimited fines and up to two years in prison for those promoting or managing unnotified schemes.
What Counts as Tax Avoidance?
This is not just about traditional tax fraud. The government defines avoidance broadly — as bending the tax rules to gain a benefit not intended by Parliament. In the staffing context, this could include:
Paying workers via loans, offshore structures, or net pay models
Avoiding full PAYE and NICs for workers that should be paid on payroll
Using mini-umbrella companies to artificially reduce tax liabilities
Promoting expense reimbursement schemes without proper entitlement
Encouraging false tax refund claims for work-related expenses
It does not have to involve deliberate deception to be caught by the new regime. Even “creative” arrangements that reduce tax but serve no commercial purpose could be classed as avoidance.
Who Is at Risk?
The new rules will capture any organisation that plays a part in designing, promoting or enabling a tax avoidance scheme.
This could include:
Umbrella companies
Recruitment agencies and staffing firms
End clients or hirers involved in promoting payment models
Providers of tax insurance or indemnity schemes
Intermediaries involved in onboarding workers into schemes
You don’t need to be the main designer of a scheme to face liability. Helping promote, sell, or implement it — even indirectly — could be enough to be classed as a “promoter” under the rules.
DOTAS and Criminal Sanctions
The DOTAS regime was designed to help HMRC identify tax avoidance schemes early.
However, until now, failing to report a scheme only triggered civil sanctions. HMRC argues that this lack of bite has allowed avoidance to flourish, particularly in the umbrella market.
To tackle this, the government now proposes:
Criminal sanctions for failing to notify a scheme under DOTAS
Universal Stop Notices to shut down schemes quickly
Promoter Action Notices (PANs) to prevent businesses from working with promoters
Information powers to compel “connected parties” to disclose their links with schemes
For compliant staffing businesses, this will be welcome. For others — particularly those unknowingly working with non-compliant umbrellas — the risks just became significantly higher.
Not Just Avoidance — Tax Fraud Crackdowns Too
Alongside the avoidance crackdown, HMRC is also expanding its investigations into serious tax fraud — including within large companies using labour supply chains.
Under the Criminal Finances Act 2017, businesses can be prosecuted for failing to prevent the facilitation of tax evasion. If your company doesn’t have reasonable procedures in place to stop someone in your chain engaging in fraud, you may be liable.
The government has signaled that it’s now seeking high-profile prosecutions to send a message — and the staffing sector is one of the most exposed.
Whistleblowers & AI Tools
To fuel enforcement, HMRC will launch a US-style whistleblower program offering rewards for informants who expose serious avoidance. AI and advanced data tools will also be used to track patterns and flag high-risk operators across umbrella and staffing chains.
For ethical agencies who have lost market share to non-compliant rivals, this could level the playing field — but it also means more scrutiny than ever.
2026 Umbrella Reform: A Tipping Point?
This criminal regime sits alongside the upcoming April 2026 umbrella company reforms, which will place new tax compliance responsibilities on end clients and agencies, even when an umbrella is involved.
Combined, these reforms aim to squeeze out non-compliant umbrella arrangements entirely, by:
Imposing criminal penalties for promoting unreported schemes
Forcing users of schemes to perform more due diligence
Targeting banks, insurers, and tech platforms linked to tax avoidance
Driving up the cost and risk of using opaque payment models
What Recruitment Businesses Should Do Now
Audit your supply chain — Know exactly how your workers are paid.
Review contracts and onboarding processes — Are any third-party schemes being promoted to workers?
Avoid any “too good to be true” net pay offers from umbrella partners or intermediaries.
Document your compliance procedures under the Criminal Finances Act.
Get legal advice if you suspect a tax arrangement may trigger DOTAS.
Final Word
These proposals aren’t just about tax — they’re about corporate risk and criminal liability. For recruitment businesses, the days of plausible deniability around how workers are paid are over.
If you use umbrellas, engage contractors, or offer any form of payroll model, now is the time to take legal advice and ensure you are on the right side of the law — and HMRC.