HMRC have published an issue briefing 'Tax fraud warning: Attempts to use 'Bills of Exchange’ to pay HMRC', highlighting schemes that are marketed particularly to the recruitment and temporary labour sectors. HMRC do not accept Bills of Exchange as a valid form of payment.
What is a Bill of Exchange and do HMRC accept them?
A Bill of Exchange is defined in the Bills of Exchange Act 1882. It is a note from one person to another, requiring that person to pay a certain sum of money to them or a third party.
- It is up to the recipient to decide whether or not to accept the Bill as a form of payment.
- Even when the Bill has been drawn up under the legislation, the recipient has no legal obligation to accept it.
HMRC does not accept Bills of Exchange, or similar private instruments, for payment of tax liabilities.
- Tax liabilities must be settled using HMRC’s normal payment methods.
How are they marketed?
Promoters, particularly in the recruitment and temporary labour sector, claim that a Bill of Exchange can be used to wipe out a debt to HMRC.
- 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.
- In addition to ‘Bills of Exchange’, other forms of wording in promotional material may include reference to money orders, Public Trusts, Merchant Law or Negotiable Instruments.
Promoters may also claim that using Bills of Exchange can avoid the new Umbrella company legislation, which was introduced from April 2026. HMRC states that this is not true.
In some cases, promoters may claim that the use of these arrangements is accepted or unchallenged by HMRC, or that the arrangements have been approved by King's Counsel (KC). This is not the case.
Risks of using the arrangements
HMRC warn of the costs of using Bills of Exchange arrangements.
- Where taxpayers attempt to use Bills of Exchange or promissory notes and refuse to pay the amount owed using HMRC’s Usual payment methods, HMRC will use its enforcement powers to collect any outstanding amounts.
- HMRC states that this has recently been tested in the courts in the Winding-up of a company, where the court accepted that the money orders or Bills of Exchange offered to HMRC in payment of the company’s liabilities were not valid payment.
- Using these arrangements could significantly cost, not only by paying the promoter to use or facilitate their payment model, but also additional interest, penalties or fees that may be charged by HMRC where a debt is not fully paid on time.
Recommended actions
HMRC recommend:
- Undertaking robust due diligence.
- Seeking independent professional advice before signing up to any schemes that suggest a tax saving will be made.
- Not relying on simply being told that arrangements are fully compliant.
Anyone who may already be using such payment arrangements is advised to contact HMRC as soon as possible, after considering the need for independent advice.
Taxpayers who are unable to pay tax owed on time are encouraged to contact HMRC.
Concerns about individuals or organisations offering a tax-saving arrangement, avoidance scheme or fraud arrangement can be reported to HMRC anonymously online or by telephone.
Useful guides on this topic
How to pay HMRC
How do I pay tax or tax penalties? How do I pay HMRC?
Agency workers: Umbrellas & anti-avoidance PAYE rules
What is an umbrella company? Who is responsible for operating PAYE in labour supply chains? What is the new legislation for umbrella companies? How will this affect existing labour supply chains?
Ceasing trading: What are your options?
What are your options if you are going to cease trading? What processes must be followed if you want to close down a company? What are the tax, company and insolvency law requirements?
Promoters of Tax Avoidance Schemes (POTAS)
Who is a Promoter? What are the Promoters of Tax Avoidance Scheme rules? What does this mean for promoters, intermediaries and clients?
External link
HMRC issue briefing: tax fraud warning about ‘Bills of Exchange’ schemes