Headlines and LinkedIn posts asserting "HMRC lands £1million penalty against a contractor umbrella company" are right to turn heads.
Industria Umbrella Ltd: introduction
But when is a penalty not truly a penalty? Well, in the eyes of both the penalised and taxpayers, it's probably when the penalty's chances of being actually collected by HMRC are slim to none, writes Naseerah Mussa, a consultant at law firm Chartergates.
And that's one of the takeaways for contractors of this case involving HMRC and the umbrella company in question — Industria Umbrella Ltd.
However, it's also a case that cues up the big change that umbrella companies, and especially umbrellas' clients, will see from very soon — Joint & Several Liability effective April 2026.
What happened in HMRC v Industria Umbrella Ltd?
First, though, let's explore the case itself, which was handed down by the First-tier Tribunal in the middle of the previous quarter (Q2 2025).
It centres on an application by HMRC for penalties amounting to £1m against "Industria Umbrella Ltd (In Liquidation)," for its failure to disclose a tax avoidance scheme under the Disclosure of Tax Avoidance Schemes (DOTAS) provisions of the Finance Act 2004.
The core of the dispute centres on a contractor loan scheme operated by Industria between 2017-18 and 2019-20.
What scheme did Industria operate?
The arrangements were designed to allow users to provide contractor services to arm's length end-user clients, while retaining more money than they would as an employee, a self-employed individual, or a director of their own company.
Such a financial advantage was achieved by paying users a nominal salary equivalent to the National Minimum Wage, with the remainder (and majority) of their 'income' being paid as a 'loan.'
What the FTT found about Industria Umbrella…
In May 2025, the FTT found that the loans were a balancing payment to top up users' take-home pay — to approximately 80% of their gross contract value, effectively avoiding income tax and NICs on the bulk of the users' earnings.
The scheme documentation indicated that these were advances of unearned "bonuses".
The FTT determined that:
- Industria's arrangements were indeed notifiable under the DOTAS legislation;
- that Industria was the promoter; and
- that Industria failed to notify HMRC within the prescribed period.
Did Industria have a reasonable excuse?
Once this was established, the burden of proof shifted to Industria to demonstrate a 'reasonable excuse' for its non-compliance.
However, because Industria had entered creditors' voluntary liquidation in May 2021 and its liquidators did not wish to contest the penalty application, no "reasonable excuse" arguments were put forward.
This lack of opposition from the liquidators played into the FTT's decision.
Three factors that the FTT addresses in Industria-type cases
Running to a significant length of 60 pages, the FTT's decision follows a consistent approach in this field with established case law, by addressing factors such as:
- whether the arrangements were notifiable;
- whether there was a failure to notify, and;
- whether a reasonable excuse existed.
The FTT upheld HMRC's position.
Will Industria's £1m penalty from HMRC ever be paid?
However, the important matter of whether the £1million penalty will ever be paid remains complex. And it's due to the company's status.
Industria is in liquidation, and the appointment of the liquidators means the company's assets will be distributed to its creditors in a statutory order.
While the FTT has determined that a penalty is due, the penalty's collection is dependent on the availability of funds after secured and preferential creditors, including HMRC for certain tax liabilities, have been paid.
The £1m penalty itself is treated as if it were tax charged in an assessment, but this does not guarantee its place higher up in the hierarchy of debt repayment.
Joint and Several Liability Notice
As alluded to in the introduction, Industria also briefly mentions joint and several liability, insofar as a JSL Notice (JSLN) was issued against Industria's director, Mr Henry Radford-Fragoso, but was later withdrawn by HMRC.
This is significant because a JSLN could have made the director jointly liable for certain debts of the company.
The withdrawal of this notice means that HMRC chose not to pursue personal liability against the director.
What happens to the HMRC penalty now?
Given that the company is in liquidation, and the liquidators have stated they do not wish to contest the penalty, the penalty amount will be added to HMRC's claim against Industria.
However, the reality of insolvencies is that unsecured creditors, which would include this penalty, often receive a minimal or no return on their claims.
The hearing did not provide details on the company's assets or liabilities beyond the fact that the company is in liquidation.
A penalty that never penalises (isn't truly a penalty)
However, the overall context of such cases suggests that the penalty, although legally imposed, may never be fully or even partially recovered by HMRC due to a lack of available funds within Industria.
So, although HMRC's victory established a strong precedent, the practical enforcement of the penalty of £1 million is likely to be limited by the insolvency process.
Industria and the likes of are surely the whole point of JSL from April
On a separate but relevant note, from April 2026, the new umbrella company legislation, which imposes a joint and several liability, will come into effect for umbrella companies.
This upcoming change is expected to extend liability to others in the contractual chain that engage umbrella companies.
And so, where umbrella companies or "purported" umbrella companies fail to pay PAYE and NICs over to HMRC, HMRC can seek to recover the unpaid taxes from another party in the contractual chain.
Final thought
The Industria case is a strong example of the circumstances under which HMRC may look to utilise this new JSL power when it comes into force, and it certainly highlights the importance of 'due diligence' when engaging with umbrella companies.
