A Bill Of Exchange (BOE), or “Bills of Exchange” as HMRC calls them in 2026/27, sounds complicated.
What is a Bill Of Exchange (BOE)?
But at its core, a Bill Of Exchange is simply a written instruction demanding that someone pays a set amount of money to another person or business.
As a model, the BOE dates back centuries and is governed by the Bills Of Exchange Act 1882.
If you’re a contractor, you can think of a Bill Of Exchange as an old-fashioned IOU with legal formatting. One party ‘draws’ the bill, another party is asked to pay it, and a third party may ultimately receive the money.
However, there is one major catch — receiving a Bill Of Exchange does not mean anyone has to accept it, writes Naseerah Mussa, legal consultant at Chartergates, a leading law firm specialising in employment law, tax and VAT.
How are Bills of Exchange relevant in 2026/27?
While the above is a history and definition of Bills Of Exchange, contractors using umbrella companies might be wondering why they need to know about the BOE model in 2026/27.
Well, it has come to HMRC’s attention that there are promoters, particularly in the labour supply sector, marketing a scheme whereby an employer’s PAYE and NICs (and potentially VAT) liabilities are ‘settled’ by a third party utilising a Bill Of Exchange.
It’s a development that has prompted yet another HMRC Policy Paper focused on the labour supply sector, albeit this time led by the arresting words — “Tax fraud warning.”
See HMRC’s full paper, Tax fraud warning: Attempts to use ‘Bills of Exchange’ to pay HMRC, here.
What does HMRC say about Bills Of Exchange?
It appears to me that HMRC has, rightfully I think, been quick to act. And it 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.
HMRC’s guidance in the paper, published on May 13th 2026, makes its position on Bills Of Exchange crystal clear.
What are four key takeaways of HMRC’s Tax Fraud Warning on Bills Of Exchange?
There are four key takeaways from the HMRC policy paper concerning the BOE model:
- HMRC does not accept Bills Of Exchange, promissory notes, or “similar private instruments” as valid payment for tax liabilities.
- PAYE, VAT, Corporation Tax, and other liabilities must be paid using HMRC’s recognised payment methods, such as bank transfer or direct debit.
- If a business attempts to rely on a Bill Of Exchange instead of making proper payment, HMRC will continue to treat the tax as unpaid. Interest and penalties can continue to accrue while HMRC enforcement action escalates.
- HMRC’s recovery powers are extensive. They include debt collection proceedings, enforcement visits, distraint action, winding-up petitions, and, in serious cases, insolvency or bankruptcy proceedings.
For umbrellas and recruiters, are Bills Of Exchange risky?
For agencies and umbrella companies, Bills of Exchange create a serious commercial risk. A Bill of Exchange may be marketed as a clever financial shortcut, 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.
Do Bills Of Exchange pose an HMRC tax risk?
With HMRC making plain that a Bill Of Exchange (BOE) arrangement in the umbrella company market will notbe accepted as settling any tax and/or NI liabilities, utilising such schemes will simply draw more attention to the entire labour supply chain.
That is where the BOE usage becomes particularly problematic.
HMRC is likely to ask a simple question: did any real payment actually take place?
What if a PAYE payment only exists on paper?
If the instrument lacks genuine commercial substance, based on its own published guidance, HMRC will conclude that the payroll debt was never properly settled at all.
In other words, if the payment only exists on paper, the tax liability still exists in reality.
Bills Of Exchange: Do umbrella company directors risk personal liability?
For umbrella companies utilising such BOE arrangements, there is inevitably the danger that HMRC could utilise existing powers to transfer PAYE and NIC debts to directors personally.
And of course, following the April 6th 2026 introduction of the Joint & Several Liability (JSL) legislation, those parties further up the contractual chain should also be fearful of such arrangements, as HMRC now has the power to pursue a party further up the supply chain for any unpaid PAYE and NICs liabilities.
Does HMRC need proof to pursue parties under JSL?
As we have already confirmed (in our JSL ‘Legal Insight’ videos here), HMRC does not need to prove anything to pursue those further up the chain under JSL— there just has to be an unpaid liability.
The danger increases further where agencies or end-clients ignored red flags, and where the arrangement extends to the payment of VAT using a Bill Of Exchange.
HMRC guidance focuses on whether parties “knew or should have known” that there was VAT fraud in the supply chain. If tax and NI liabilities are supposedly settled through artificial instruments, HMRC may challenge whether the underlying transactions were economically genuine in the first place. The result could be a domino effect of PAYE, NICs, and VAT exposure, spreading across multiple parties and accounting periods.
Key takeaway
The Bill Of Exchange (BOE) model may be being presented by sales teams as an innovative payment solution, but HMRC is far more likely to view such a bill as an ineffective attempt to sidestep genuine tax obligations.
For recruitment agencies, umbrella companies, and others in the labour supply chain, the real danger is that unpaid PAYE, NIC, and VAT bills can quickly jump up the chain, leaving the most solvent party holding the total HMRC liability — long after the paper trail runs out.
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