The Spring Statement failed to provide any further details on the proposed changes for April 2026 although did release 2 Consultations:

1.      Closing in on promoters of tax avoidance

2.      Enhancing HMRC’s ability to tackle tax advisers facilitating non-compliance

The first closes on 18th June and the second on 7th May.

With proposals already confirmed for April 2026 for a major shake up in the umbrella market this would appear to be putting the cart before the horse.

My initial response to both would be – START USING THE DATA YOU ALREADY HAVE!

For years, HMRC has been sitting on a treasure trove of data that could have prevented the current crisis in umbrella company compliance. Instead of proactive action and visible enforcement, we're now facing more “sticking plaster” reforms that might have been unnecessary had existing tools been properly utilised.

The Warning Signs Were There

Since 2013-2015, HMRC has had unprecedented visibility into payroll structures through two powerful mechanisms: Real-Time Information (RTI) and Intermediary Reporting. These systems should have flagged clear warning signs of non-compliance:

• Mini Umbrella Companies exploiting VAT and National Insurance breaks
• Disguised remuneration schemes showing discrepancies between earnings and tax
• Excessive deductions from workers' payslips

Yet despite possessing this goldmine of data, HMRC took a reactive approach, allowing non-compliance to flourish unchecked.

Why the System Failed

HMRC's enforcement approach proved fatally flawed in several key ways:

• Sluggish enforcement mechanisms relied on retrospective audits rather than real-time intervention
• Failure to cross-check agency payment reports with worker tax records
• Misplaced focus on pursuing individual workers rather than scheme promoters – chasing the victims instead of the "snakes" who designed and profited from non-compliant arrangements

The result? A crisis that has cost workers and cost the Treasury billions in tax revenue.

AI got it right in seconds

The government's recent AI Opportunities Plan emphasises the need to ‘develop a more sophisticated understanding of the value of the data it holds’. Yet, HMRC's actions in the umbrella company sector show they are ignoring their own advice. 

We decided to put AI to the test. When presented with a simplified scenario of the umbrella company payment chain, AI quickly demonstrated how HMRC could identify non-compliance by cross-referencing its existing data in the form of RTI reporting and Employment Intermediaries Reporting. By comparing gross amounts reported by recruitment companies with payments and deductions reported by umbrella companies, any discrepancies would become immediately apparent.

When faced with two options – ignore existing data and create new rules (resulting in significant business disruption) or use available data to identify discrepancies (with no additional costs) – AI recommended the latter as ‘the most efficient and practical approach’. And it came up with that conclusion in seconds.  It has taken HMRC decades to not realise it.

The Off-Payroll Catalyst

The implementation of Off-Payroll Working Legislation created a perfect storm for non-compliance. Industry experts warned HMRC that their approach would cause a "cliff-edge drop" in earnings for 30-50% of workers, creating a vacuum that non-compliant providers would rush to fill.

These warnings proved accurate. Without robust enforcement, non-compliance exploded, particularly in healthcare, social care, and education – sectors with high concentrations of affected workers. The "snakes" operating these schemes multiplied rapidly, pocketing substantial profits with minimal consequences.

Why Wait Until 2026?

Perhaps most perplexing is the government's decision to delay legislation in tackling non-compliance in the umbrella market until April 2026, effectively creating a "sell-by date" that incentivises an explosion of disguised remuneration schemes.  ONS data for February revealed that the Chancellor faced a £4.2 billion gap between forecasted and actual borrowing, so any delay makes little financial sense.

By waiting a year, HMRC risks repeating the same mistake made during Off-Payroll introduction – creating another cliff-edge that will allow non-compliant providers to thrive in the interim and leave more workers vulnerable.

A Better Way Forward

Professional Passport's 2021 report, "The Good, The Bad and The Ugly," outlined actionable recommendations that could have prevented today's compliance issues:

• Use Existing Data Now: HMRC already possesses the information needed to identify and shut down non-compliant schemes immediately
• Partner with Compliance Accreditations: Working with established accreditation bodies could quickly remove market access from non-compliant providers
• Implement Real-Time Enforcement: Shift from passive observation to active intervention

Taking these steps now would:

• Generate immediate tax revenue for the Treasury
• Eliminate the need for disruptive regulatory changes
• Prevent a new boom in avoidance schemes before 2026

Lessons Not Learned

Despite years of consultation and feedback from industry experts, HMRC continues to apply "sticking plaster" solutions that address outcomes rather than root causes. This approach has consistently created unintended consequences, often worsening the very problems it aims to solve.

The question remains: Why does HMRC continue to ignore practical solutions while pursuing approaches that have repeatedly failed?

The answer lies in their enforcement philosophy. Until HMRC shifts from targeting individual taxpayers to "cutting the heads off the snakes" – the scheme promoters and architects – non-compliance will continue to thrive.

With £4.2 billion reasons to act differently, it's time for HMRC and the Treasury to recognise there's a better way – one that could increase tax revenues immediately rather than waiting until 2026. The tools and data are already available. All that's missing is the will to use them effectively.