Spring Statement 2025: Reeves equips HMRC for contractors not yet on PAYE

Spring Statement 2025 unleashing a crackdown on dodgy tax advisers and avoidance schemes is its key measure for contractors.  

An extra £1billion by HMRC tackling tax evasion was also announced today, in what was the shortest Spring Statement in living memory.

Chancellor Rachel Reeves said in the House of Commons that her second fiscal statement does not contain “any further [tax] increases”.

It was a nod to employer NICs changes which, despite appeals by umbrella and limited company experts, will still apply from April 6th 2025.

The chancellor’s ‘no further increases’ remark speaks, too, to Labour’s aim to run one fiscal event a year, which Reeves reiterated in her televised address.

‘Spring Statement 2025 contains nothing much new for contractors’

The effect for contractors, though, is there’s “nothing much [new] in Spring Statement 2025,” FCSA’s CEO Chris Bryce told ContractorUK.

Not that Bryce, a former contractor, is necessarily complaining.

“We didn’t expect to see anything [new] regarding proposed umbrella company regulation today, and we were not disappointed,” he says.

“One thing that caught my eye was the chancellor’s target of a 20% increase in enforcement against tax evaders. That’s something we’ve long lobbied for.”   

‘Labour looking a lot towards HMRC tax compliance’

Michael McCullion, of Bright Ideas Accountancy, says that aside from the HMRC crackdowns (four consultations are launched today), there’s “not really much” on the surface for contractors.

Nonetheless, the firm’s director who is also its head of contractor services, McCullion says it doesn’t mean limited company contractors are off the hook.

“From reading Spring Statement 2025, it’s clear that this Labour government are looking a lot towards tax compliance.

“And specifically, how HMRC compliance can be ramped up to tackle tax avoidance.

“For those contractors operating as a limited company, increases to late payment penalties, plus further investment into HMRC compliance, mean it will be crucial to ensure they have their affairs in order.”

‘Cutting-edge tech for HMRC will raise £1bn more’

Carolyn Walsh, a former tax inspector observes that Spring Statement 2025 offers her old boss “cutting-edge tech.”

She told ContractorK: “Unlike the newly announced HMRC consultations, affecting advisers and promoters at some stage, this happens for HMRC now.

“Or at least, there was no delay cited when the chancellor said HMRC would use tech to add £1bn to a £7.5bn tax evasion yield.”

‘HMRC consultation on closing in on promoters of tax avoidance’

In a new consultation, “Closing in on promoters of tax avoidance,” HMRC says it will seek views on expanding the scope of DOTAS.

Between now and June 2025, HMRC will explore in the consultation introducing a “Universal Stop Notice” and “Promoter Action Notice.”

The 10-chapter consultation says that “those behind the promotion of schemes” and their design, or contribution, will be tackled too.

‘Offence for failure to register notifiable DOTAS arrangement is interesting, but…’

Tom Wallace of WTT Group told ContractorUK he’s supportive, but not universally.

“A specific criminal offence for failing to register a notifiable arrangement under DOTAS is certainly interesting, but it could see a flood of arrangements being notified to HMRC out of fear,” began Wallace, formerly of HMRC.

He added: “This means HMRC will need sufficient resource to not only investigate arrangements appropriately registered but also to review those that are not intended to be caught by DOTAS, if it is to meet its purpose. 

“In addition, civil penalties will remain so are HMRC intending to prosecute by default, or will it be used as sparingly as the ‘Failure to Prevent Tax Evasion’ offence brought in by the Criminal Finance Act 2017, and, if so will the offence simply existing be a sufficient deterrent?”

‘Key problem for HMRC remains’

Graham Webber, who co-founded WTT Group, believes the chancellor’s move against avoidance promoters smacks of too little too late.

“My personal view of the proposed action against promoters of tax avoidance is that it is very welcome and I only wish we had that 20 years ago,” Webber began in a statement to ContractorUK.

“If however, HMRC has recognised that it was an error not having these powers 20 years ago, might they be prepared to acknowledge this is in reasonable settlement terms? I doubt it.

“The key problem for HMRC remains not the action that can be taken post-launch of a scheme, but how they could or should spot the signs earlier and take pre-emptive steps such as insisting that all schemes involving a tax advantage pay for an HMRC clearance.

“Until HMRC is quicker and better at moving quickly, the problems will remain unsolved.”

Umbrella company experts find it hard not to look at the chancellor’s emboldening of HMRC through the lens of brolly regulation and ‘deemed employer.’

‘Labour plans for umbrella companies continuing’

Ciaran Woodcock of SG Umbrella told ContractorUK this afternoon:

“The government’s new measures to crack down on tax avoidance and evasion are expected to generate an extra £1bn in revenue.

“This would indicate plans to push through the changes to the umbrella industry will be continuing, although exactly how this will be implemented will be in the upcoming legislation.” 

‘HMRC budget for tackling tax avoidance and evasion set to significantly grow’

Adrian Marlowe, chair of the Association of Recruitment Consultancies, told ContractorUK:

“Spring Statement 2025 containing a 1% forecast of UK growth for this year - from the OBR - is not [going to be] inspiring to contractors.

“Conversely, HMRC expenditure on tackling tax avoidance and evasion is set to significantly grow.

“This comes at a time when measures proposed to tackle umbrella regulation are proposed to reduce tax avoidance and evasion in that sector at least, presumably lowering HMRC cost in that area, but at the cost of the employment rights of the workers concerned.”

‘Labour to press ahead with deemed employer’

Clarity Umbrella says no mentions of umbrella companies at Spring Statement 2025 means officials will “press ahead” with ‘deemed employer.’

“That’s even though it has been highlighted by many that their required ‘impact assessment’ [for the deemed employment proposal] has never been completed,” Clarity's Lucy Smith told ContractorUK, adding:

“After listening to the chancellor’s Spring Statement speech today and hearing Reeves repeatedly claim to be the party for the ‘working people’, we would have to take the assumption that the valuable, temporary labour market isn’t a priority.

“Maybe in April 2026 – the commencement date for ‘deemed employer,’ this valued workforce may decide enough is enough. Reeves may then be in for a shock at how her ‘employment’ figures look.”

A big change affecting the future of umbrella companies quietly happened on the eve of Spring Statement 2025.

‘Employment Rights Bill Clause 34 changes employment business definition to capture umbrellas’

In particular, Clause 34 of The Employment Rights Bill was amended so the definition of an employment business now captures umbrella companies too.

Legal expert Roger Sinclair, of Egos Ltd, demystified the change to ContractorUK this morning:

“Until now, it may have been possible to argue that umbrella companies did not fall within the scope of the Employment Agencies Act or the Conduct Regulations. That will now change.

“It seems to me that the amendment to the EAA, rather than defining umbrellas as such, instead broadens the definition of an ‘employment business’ in that act, in a way which is likely to result in umbrella companies being clearly included within that definition. 

“The purpose of this change is to lay the ground for amendment of the Conduct Regulations. Such proposed amendments have yet to be published, so we can but speculate as to what they will be.  

“But the proposed change…is a necessary step to open the door to amending these regulations, in ways that will govern umbrellas.”

‘Umbrella companies under regulatory oversight’

Notes by the government to Employment Rights Bill Clause 34 state that umbrella directors would face potential jail-time for breaching Labour Market Enforcement orders.

Patrick Gribben, a director at Brookson today confirmed to ContractorUK: “There are [now newly] proposed amendments to the Employment Rights Bill which will bring umbrella companies under regulatory oversight from April 6th 2026.

“These changes may be subject to future amendment in 2025. We will be keeping a close eye on developments in the weeks and months to come.”

‘Non-compliance facilitated by tax advisers’

Ironically, some advisers who may offer feedback about the amendments also stand to be potentially affected by Spring Statement 2025.

“This consultation seeks views on whether HMRC’s current powers are effective in dealing with non-compliance facilitated by tax advisers,” HMRC says -- here.

“It will be of particular interest to tax advisers, their clients or potential clients and tax and accountancy professional and regulatory bodies.”

‘Tax advisers who contribute to the tax gap’

HMRC says it will explore expanding information powers against tax advisers and look at introducing stronger penalties against “tax advisers who contribute to the tax gap.”

The consultation will further consider publishing details of tax advisers subject to HMRC sanctions and sharing a greater range of information about tax advisers with their professional bodies.

The two other HMRC consultations announced at Spring Statement 2025 concern strengthening HMRC’s “inaccuracy and failure to notify penalties,” and how HMRC can make better use of third-party data to “increase automation and close the tax gap.”

‘Tougher stance on tax avoidance’

Out of the four HMRC consultations, Bright Ideas Accountancy says that alongside the avoidance promoter consultation, the adviser consultation is the most relevant to contractors.

"HMRC’s proposed crackdown on tax advisers facilitating non-compliance signals a tougher stance on tax avoidance,” cautions the firm’s Mr McCullion.

“While responsible accountants already adhere to strict compliance, these measures may lead to increased scrutiny on legitimate tax planning, potentially creating more administrative burden.

“Contractors should ensure their advisers follow best practices to avoid unintended consequences.

“This move reinforces the importance of working with qualified professionals and staying updated on evolving tax regulations to prevent exposure to potential penalties or HMRC investigations.

“Transparency and due diligence will be key in navigating these proposed changes."

‘HMRC to get 500 new staff, to support last year’s batch of 5,000 tax officials’

At chapter 2.21 of Spring Statement 2025, Bauer & Cottrell pointed to a potentially additional shot across the bow of contractor limited companies.

“For now and on the surface, things remain unchanged for PSC contractors and those who engage them, as there was no IR35 mention or off-payroll working update at Spring Statement 2025.

“But buried in the green book, HMRC’s compliance activity is said to be boosted with 500 more staff to support the 5,000 last autumn.”

Bauer & Cottrell director Charlie Hemsworth continued to ContractorUK: “It is a clear signal that HMRC enforcement is only going one way.  

“There’s also increased focus on debt recovery, including automated methods and making more directors personally liable – which could have knock-on effects for contractor PSCs and anyone involved in disguised remuneration or phoenix arrangements. While not headline-grabbing, these steps hint at a more aggressive, data-driven HMRC. And all should take note.”

‘Contractors too often hounded by the tax office’

Qdos hears the same mood music.

“The government’s crackdown on [abusive] tax [activity] is gathering pace,” the firm says.

“Assuming HMRC pursues the right people and businesses, this is no bad thing. But all too often, innocent freelancers, contractors and self-employed workers are hounded by the tax office – which can be a stressful, expensive ordeal for everyone involved.

“The key takeaway here is that HMRC is set to have more resources at its disposal and information at its fingertips.”

‘More compliance staff for HMRC’

Rebecca Seeley Harris of ReLegal Consulting is arriving at the same conclusion about Spring Statement 2025.

“The key takeaway [of the chancellor’s statement] is more compliance staff for HMRC and a focus on debt recovery -- as well as going after promoters of tax avoidance schemes.”

Formerly of the Revenue, Walsh suggests it would be naive for umbrella and limited company workers to not see Spring Statement reinforcing HMRC as part of joined-up thinking by the government.

‘Tough time ahead for some limited company directors’

“With four consultations all looking at making HMRC a better tax collector, the upshot is that ‘cold’ tax cases may be reopened, new investigations will commence, and debt recovery action will rise.

“As for the few directors who still believe that a good accountant can legitimately cook the books, they will have a tough time ahead.

“While the majority of ContractorUK readers might not need to worry that the government’s plans are directed in any way at them, the government's focus remains firmly on ‘working people,’ which may include self-employed workers, but it’s not contractors, small business owners or the retired and otherwise economically inactive.”

‘More people on PAYE, or more hearing from a reinvigorated taxman if not’

Now boss of Oblako Ltd, Walsh added: “Remember, it’s likely many contractors will go into more conventional employment when the new April 2026 rules for umbrellas upend the temporary labour market.

"The point is this – and the chancellor knows it, to make good on Labour’s growth and revenue promises, Reeves needs to swell the coffers by getting more people into conventional work -- that’s more people into paying PAYE, and where neither of those two can be done, more people on the receiving end of a soon-to-be reinvigorated HMRC.”

Editor's Note: Further analysis and expert reaction to Spring Statement 2025 can be found in ContractorUK's comprehensive guide to the chancellor's March 26th announcements: https://www.contractoruk.com/news/0016715spring_statement_2025_ten_devils_detail_contractors_must_face.html