HMRC Rejects Bills of Exchange as a Solution to Joint and Several Liability Risks

HMRC has issued a clear warning to agencies, umbrella companies and contractors over the use of Bills of Exchange as a method of avoiding liability under the new Joint and Several Liability (JSL) legislation.

The warning follows reports that some providers are promoting Bills of Exchange and similar financial instruments as a way of settling tax liabilities without making a direct payment to HMRC. According to the tax authority, these arrangements do not work and will not remove liability from parties within the labour supply chain.

What Are Bills of Exchange?

Bills of Exchange are long-established financial instruments governed by the Bills of Exchange Act 1882. Traditionally they have been used in commercial transactions as a written order requiring one party to pay a specified amount to another party.

However, some promoters are now marketing them as a solution for businesses concerned about the impact of the new JSL rules which came into force on 6 April 2026.

Under these arrangements, businesses are told that a Bill of Exchange can be used to discharge PAYE liabilities or other tax debts without the need for cash payment. HMRC has categorically rejected this position.

HMRC’s Position

In a fraud warning issued in May, HMRC stated that it does not accept Bills of Exchange or similar private instruments as payment for tax liabilities.

The Revenue also challenged claims that these arrangements can be used to avoid the new umbrella company legislation. According to HMRC, any suggestion that a Bill of Exchange removes liability under the JSL framework is incorrect.

The warning extends beyond Bills of Exchange themselves and includes other privately issued instruments being promoted as alternatives to conventional tax payments.

Why Agencies Should Be Concerned

The biggest risk may not sit with the umbrella company promoting the arrangement but with the wider supply chain.

Under the new JSL rules, HMRC can transfer unpaid PAYE liabilities to other parties where payroll obligations have not been properly met. This means recruitment agencies and end clients could ultimately find themselves facing significant tax demands if an umbrella company fails to account for PAYE correctly.

Legal experts have warned that if an umbrella company relies on a Bill of Exchange arrangement and HMRC determines that no valid payment has actually been made, the tax liability remains outstanding. HMRC may then pursue whichever party within the chain is best placed to settle the debt.

For agencies, this creates a potentially serious financial exposure.

Industry Experts Urge Caution

Payroll compliance specialists and legal advisers have expressed concern that some businesses may be tempted by marketing claims suggesting that Bills of Exchange offer a simple route around the new legislation.

Many have warned that these arrangements could simply shift risk elsewhere within the supply chain rather than removing it altogether.

Compliance professionals have also noted that agencies should be particularly careful when assessing any proposal that claims PAYE obligations can be satisfied without a genuine payment reaching HMRC.

Claims of Legal Approval

Some promoters have reportedly suggested that Bills of Exchange arrangements have received endorsement from senior legal professionals.

However, HMRC has disputed these claims and has stated that references to approval by King’s Counsel should not be interpreted as confirmation that the arrangements are effective or compliant.

Industry commentators have similarly cautioned that legal opinions should not be viewed as guarantees that HMRC will accept a particular arrangement or that a challenge would be successful if the matter reached court.

The Wider Impact of JSL

The emergence of Bills of Exchange as a proposed workaround highlights the growing concern surrounding the implementation of the Joint and Several Liability regime.

Many agencies, umbrella companies and managed service providers spent months preparing for the introduction of the new rules. The legislation significantly increases the importance of supply chain due diligence and places greater emphasis on ensuring payroll taxes are correctly accounted for throughout the chain.

As HMRC begins enforcing the new framework, businesses are being urged to scrutinise any arrangement that promises to eliminate or reduce liability through unconventional payment mechanisms.

Conclusion

HMRC’s message is straightforward. Bills of Exchange do not settle tax liabilities and cannot be relied upon as a method of avoiding the Joint and Several Liability rules.

For agencies and other supply chain participants, the safest approach remains robust due diligence and working with compliant payroll providers. Any arrangement claiming to remove PAYE liabilities without genuine payment to HMRC should be treated with extreme caution.

As enforcement activity increases, businesses that rely on untested workarounds may find themselves facing the very liabilities they believed they had avoided.