Bills of Exchange fail to avoid new umbrella company rules, says HMRC

The first model to try to bypass the HMRC Joint & Several Liability (JSL) legislation for the umbrella company contractor sector has emerged.

A helpful way for contractors to regard the model — Bills of Exchange — is as a sort of “old-fashioned IOU, with legal formatting,” law firm Chartergates explained to ContractorUK.

But despite being centuries-old (they are governed by the 1882 Bills of Exchange Act), the bills are now being promoted in 2026/27 as a way to sidestep JSL of April 6th 2026.

What has HMRC said about Bills of Exchange?

HMRC has put the issue beyond doubt, saying in an alert on May 13th 2026 (“Tax Fraud Warning…”) that HMRC “does not accept” Bills of Exchange as payment of tax liabilities.

But Bills of Exchange are still being touted, and with potentially grave HMRC consequences.

“I just hope…that people don’t view it as a storm that has passed,” says Louise Alemanno, an account director at Parasol, an umbrella company.

What if an umbrella company is relying on a Bill of Exchange?

A lawyer at C2E Law, Kareena Prescott, is forecasting that the storm could be yet to come.

“Under Chapter 11 ITEPA, where PAYE is not properly operated within a labour supply chain, the agency can be treated as the deemed employer.

“[And] if an umbrella is relying on a bill of exchange mechanism,” Prescott continued in an online post, “no valid payment has been made, the liability remains, and HMRC is likely to look to the most solvent party in the chain, which is often the agency.”

Seb Maley, of Qdos, finds it “unbelievable” that supply chain parties are being told that Bills of Exchange “can avoid the new umbrella company legislation” (as a rejecting HMRC put it in its alert).

Does HMRC recognise Bills of Exchange as having a legal basis?

Mr Maley spoke of his “concern” that umbrella contractors are being told to use Bills of Exchange to pay tax liabilities or settle debts with HMRC, despite the bills “having no legal basis.”

Yet Colin Thompson, boss of ICS Accounting, is also seeing the bills offered on the sales round.

“We're already seeing some unscrupulous businesses pushing products which supposedly circumvent the JSL legislation.

“When HMRC inevitably catch up with them,” Thompson took to LinkedIn to warn, “they'll disappear and leave the agency with the liability.”

What do Bills of Exchange mean for recruiters and umbrellas?

Naseerah Mussa, a legal consultant at Chartergates, confirmed to ContractorUK that for recruitment agencies and umbrellas, Bills of Exchange pose “a serious commercial risk.”

“A Bill of Exchange may be marketed as a clever financial shortcut,” Mussa will say, in a forthcoming article, exclusively on ContractorUK.

“But HMRC has been clear that it will not treat it as ‘money in the bank.’

“If the underlying liabilities remain unpaid, HMRC can pursue other parties within the labour supply chain.”

How does a payroll compliance expert describe Bills of Exchange?

Professional Passport, a payroll compliance organisation, issued a similar warning last week.

The organisation’s Crawford Temple described Bills of Exchange as a “ruse,” that “exploits uncertainty around the new JSL rules, in an attempt to create artificial loopholes.”

Professional Passport’s CEO, Mr Temple added: “Recruiters, agencies and contractors should exercise extreme caution before becoming involved in arrangements that promise unrealistic tax advantages.”

What’s the key point about Bills of Exchange?

Addressing her own ‘followers,’ C2E lawyer Kareena Prescott specified:

“The key point [about Bills of Exchange] is that these arrangements do not remove risk from recruitment agencies; they transfer it and concentrate it.

“[And] following the High Court’s decision in February 2026 [against Halifax Rugby League Football Club Ltd], it will be increasingly difficult for agencies to argue that the risks associated with such models were not apparent.

“Any [sales] proposal suggesting that PAYE can be settled without cash payment to HMRC should therefore be approached with considerable caution.”

Does HMRC accept similar instruments to Bills of Exchange?

In its May 13th alert against Bills of Exchange, HMRC also warned that it does not accept as payment of tax liabilities “private instruments” that are “similar” to Bills of Exchange.

“Promoters claim that a Bill of Exchange [or similar private instrument] can be used to wipe out an HMRC debt,” the Revenue advisory begins.

“They offer to manage the process for customers, particularly payroll providers, and act on the customer’s behalf, drawing up any affidavits and engaging with HMRC.

“Promoters may also claim that using Bills of Exchange can avoid the new umbrella company legislation… [but] this is not true.”

Is a ‘KC-approved’ Bill of Exchange better, or safer with HMRC?

HMRC added that “in some cases,” promoters claim that the use of Bills of Exchange (or similar instruments) has "been approved by Kings [sic] Counsel (KC),” but “this is not the case.”

From his LinkedIn profile, ICS managing director Colin Thompson reflected: “[I] had someone say this to me last night — ‘but it’s been signed off by a KC.’

“[Well,] as told to me by a KC, this means nothing more than that they think they could construct some sort of defence [against HMRC], which may or may not succeed.

“[Remember], there’s literally no crime where a KC wouldn’t try to construct a defence; it’s their job.”

Are Bills of Exchange on the radar of most contractor recruitment agencies?

Like the HMRC alert, such reminders are needed as “most agencies won’t be aware” of the implications of Bills of Exchange, wrote Michael Findley, founder of Letz Do Ltd, in a thread.

And at Parasol, where the hope is that the bills are not viewed as a storm that has passed, account director Louise Alemanno says umbrellas, and others, have plenty more work to do.

Were preparations for HMRC’s JSL legislation adequate?

Ms Alemanno shared: “I just hope all the [JSL-induced] blood, sweat and tears over the last six months-plus by us [umbrella companies], agencies [and] MSPs, hasn’t been in vain.

“[Looking back now] preparations for April [relating to HMRC Joint & Several Liability rules] weren’t even scratching the surface. The real work starts now, as the risk heavily increases.”

What is HMRC’s message in its Bill of Exchange policy paper?

Last night, employment law expert Naseerah Mussa offered some reassurance, hinting that a straight-talking HMRC moving swiftly against Bills of Exchange should get the word out about the JSL ‘workaround’ that doesn’t succeed.

The Chartergates legal consultant told ContractorUK: “HMRC has — rightfully I think — been quick to act, and effectively states in the policy paper that you cannot simply ‘paper over the cracks’ of a tax liability by sending in a private financial instrument and hoping the debt disappears.”