Judge observes that the umbrella market had been a ‘lucrative possibility for fraud.’
Two consultant doctors have defeated claims worth more than £257,000 after a fraudulent umbrella company failed to account properly for PAYE and National Insurance Contributions.
The High Court judgment in Fulmar Contracting Ltd & Ors v Williams & Anor [2026] EWHC 2322 provides a stark example of what can happen when payroll money passes through an umbrella company that does not pay HMRC. Deputy Insolvency and Companies Court Judge Parfitt said Fulmar had been involved in tax fraud and failed to pay "very significant sums" of PAYE, National Insurance and VAT.
The company was wound up on 20 September 2023 after HMRC presented a petition on 4 August 2023. The winding-up order is recorded in The Gazette.
The judge also made a broader observation about the umbrella market, saying that because umbrella companies can process vast amounts of money for workers, there had been a "lucrative possibility for fraud."
Why did the doctors escape the PAYE claims?
Fulmar paid consultant doctors Dr Maria Nina Williams and Dr Tatyana Viner for locum work arranged through recruitment agency Fresh Medical.
The liquidators claimed Dr Williams had been overpaid £155,421 and Dr Viner £102,011 because PAYE and NICs should have been deducted from their earnings. They tried unsuccessfully to recover those sums through contractual claims and claims under section 238 of the Insolvency Act 1986.
The judge found the liquidators had not established that the doctors entered into the employment contracts on which Fulmar relied. He described the standard-form contracts as "riddled with errors and oddities" and questioned whether anyone could rely on documents produced by a fraudulent operator.
The second route also failed because the doctors had declared the money they received to HMRC through self-assessment, or, in Dr Williams' case, partly through a company under her control.
The court held that HMRC could not effectively tax the same income twice. The doctors therefore did not have to meet the PAYE and NIC shortfall claimed by Fulmar's liquidators. This does not mean the doctors paid zero tax, but they escaped the attempt to make them responsible for payroll liabilities that Fulmar had allegedly failed to deduct and pay.
What would happen under the April 2026 umbrella rules?
The Fulmar payments predate the new umbrella tax avoidance rules (Chapter 11 ITEPA 2003), which apply to qualifying umbrella payments made from 6 April 2026.
The new rules create joint and several liability, known as "JSL," for PAYE and NICs where an umbrella company sits in the labour supply chain. Where an agency has the contract with the end client, that agency is jointly and severally liable alongside the umbrella company. Where there is no agency, the end client can carry the liability. In short, if the umbrella doesn't pay the tax, the agency must pay it, even if it has already paid money to the umbrella.
If relevant Fulmar shortfalls arose on qualifying payments after 6 April 2026, HMRC could have pursued the agency in the chain for the unpaid PAYE and NICs.
Under the new rules, the tax liability does not follow the money. An agency cannot protect itself simply by showing that it handed the correct amount to an umbrella and expected the umbrella to deal with payroll taxes. If the umbrella fails to pay HMRC, Chapter 11 allows HMRC to recover the unpaid amounts from the relevant agency, and the agency has no defence. They must pay.
Detection does not remove the liability
Two broad assurance models are now being offered to recruitment businesses.
Some operate a detection model, checking payroll data and looking for discrepancies after money has passed through the umbrella. Others provide prevention models designed to ensure the tax is always paid rather than checking afterwards whether something has gone wrong.
Detection can identify a shortfall, but identifying it does not remove the agency's liability. If PAYE or NICs remain unpaid, HMRC can still pursue the relevant party.
A prevention model aims to prevent that liability by ensuring the tax is paid. If the agency pays the correct amount directly to HMRC, HMRC has no unpaid tax to recover under JSL.
Why full umbrella reconciliation matters
To avoid holes in detection regimes, an umbrella reconciliation must follow the full payment flow. The checking needs to reconcile what the agency paid to the umbrella against what reaches the workers and what reaches HMRC.
Agencies should be wary of assurance processes that rely only on information provided by an umbrella, which selects which transactions or payment references to check. Fraudulent operators can split agency payments across different payment references and then allow only parts of the agency's payments to be inspected. Asking a potential fraudster to prove they are not committing fraud isn't recommended.
The Fulmar case shows why agencies now need to look beyond evidence that payroll appears correct. Under Chapter 11, the agency can remain financially exposed when the umbrella fails. Agencies therefore need assurance that the full amount of money intended for workers and HMRC has reached the right destination.