£1m Penalty Levied on Liquidated Umbrella Company

HMRC Wins £1m Penalty Case Against Insolvent Umbrella Firm

A maximum penalty of £1 million has been levied against Industria Umbrella Ltd, a company that entered voluntary liquidation soon after being contacted by HMRC for non-compliance under tax avoidance disclosure rules.

Landmark Tribunal Decision

The tribunal case between HMRC and Industria Umbrella Ltd (now in liquidation) stood out for its scale and gravity. Documents for the hearing totaled 624 pages, with an additional 775 pages of legal authority, underlining the seriousness of the dispute.

Despite the original plan for a four-day hearing, Judge Natsai Manyarara was able to decide the case based on submissions alone, issuing a detailed, lengthy ruling.

The Tax Scheme at Issue

At the centre was Industria’s operation of a disguised remuneration scheme between 2017 and 2020. Under the arrangements, contractors engaged by recruitment agencies formally became employees of Industria, which:

• Paid them a small basic wage processed under PAYE
• Topped up their income with so-called "loans" that were never repaid
• Allowed users to take home around 80% of gross contract value, substantially reducing taxable income and National Insurance contributions

No proper DOTAS (Disclosure of Tax Avoidance Schemes) notification was filed with HMRC regarding the setup. On learning of the situation, HMRC indicated its intention to seek penalties from Industria.

Failure to Notify and Liquidation

HMRC's investigation began in early 2019 and concluded with a formal warning in April 2021. In response, Industria rapidly opted for creditors’ voluntary liquidation. Liquidators later confirmed that Industria was indeed the scheme’s promoter and did not contest HMRC’s penalty application.

The core questions addressed by the tribunal included:

1. Whether Industria’s arrangements were notifiable; 2. Whether Industria failed to make the required notification; 3. If so, whether there was a reasonable excuse for non-compliance; 4. And, if not, what level of penalty should be imposed.

The Tribunal’s Reasoning

According to the tribunal, HMRC bore the initial burden of proof—showing that Industria promoted a notifiable and undisclosed scheme. Once established, Industria had to demonstrate a reasonable excuse for non-compliance. It failed to meet this standard.

Judge Manyarara found:

"Providing employee benefits through these arrangements produced a clear tax advantage and was without commercial purpose beyond reducing tax and NICs. There was no reasonable excuse for the failure to notify."

He noted that the scheme sought to mask salary payments as loans to avoid tax, and that any attempt to defer, rather than avoid, tax also constituted an illegal advantage.

Consequently, the judge imposed HMRC’s sought penalty: £1 million, the statutory maximum.

Implications and Takeaways

• HMRC remains resilient in pursuing promoters of tax avoidance schemes, even if companies seek to escape liability via liquidation.
• Contractors and agencies using umbrella arrangements should ensure compliance and transparency, as HMRC is targeting such schemes.
• Liquidation does not shield companies from penalties for historic non-compliance, and continued vigilance over umbrella company practices is essential.

Key Tribunal Findings Table

Tribunal Issue	Outcome
Arrangements were notifiable	Yes
Failure to notify	Confirmed
Reasonable excuse established	No
Penalty Imposed	£1 million (maximum permitted by statute)

Expert Opinions

Industry experts were quick to highlight that the arrangement described was not representative of legitimate umbrella companies:

“No compliant umbrella company would or should offer the scheme described. This was classic payroll piracy, not standard practice." — Chris Bryce, sector commentator

Staying Compliant in a Changing Landscape

Businesses and contractors should:
• Review all payroll and contracting arrangements to ensure all disclosures are up to date.
• Consult with a tax professional if operating or considering involvement with umbrella companies or similar schemes.
• Stay alert to updates from HMRC and case law concerning employment and tax avoidance.

For those interested in the legal intricacies, the full 60-page tribunal decision provides extensive detail on tax avoidance disclosures and the statutory penalties framework.

HMRC’s victory in this high-profile case sends a clear message: attempts to disguise remuneration or avoid reporting obligations—regardless of company solvency status—are subject to the highest levels of scrutiny and enforcement.