Tackling Tax Avoidance, the Hidden Economy, Homeworking Expenses & Other Tax Measures

As always, in November 2025, the annual Budget introduced a raft of new measures which business owners and entrepreneurs need to be aware of. Wide-ranging in nature, they include measures to tackle the employers who hire illegal workers, the reporting of benefits in kind, clarifying Research and Development tax relief claims, tackling tax avoidance in the umbrella company landscape, expanding workplace benefit relief and several other measures. In this article, we highlight the main measures that may affect you. 

Employment

The government will extend right-to-work checks to cover businesses hiring gig economy and zero-hours workers. This will restrict the ability of employers to take advantage of illegal workers and ensure that legitimate businesses acting lawfully will not be undercut on labour costs by those who exploit the system.

The government will set up a dedicated ‘hidden economy’ team within the new Fair Work Agency from April 2026 to take action in sectors known to have breaches of employment rights legislation, alongside illegal working and tax issues. The team will initially target hand car washes, but will then move on to other high‑risk areas.

Mandating the reporting of benefits in kind via payroll software

The government confirms that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2027. This will apply to income tax and Class 1A NICs.

Targeted Research and Development Advance Assurance Service

The government will pilot a targeted advance assurance service from spring 2026. This will enable small and medium-sized enterprises to gain clarity on key aspects of their Research and Development (R&D) tax relief claims before submission to HMRC. A summary of responses to the advance clearance consultation will also be published.

Tackling tax non-compliance in the umbrella company market

To tackle the significant levels of tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE and Class 1 NICs on payments made to workers that are supplied via umbrella companies.

Legislation will be introduced to make employment agencies or end clients joint and severally liable for any amount required to be accounted for under the PAYE provisions, where an umbrella company forms part of a labour supply chain. Further legislation will be introduced which will impose an equivalent joint and several liability for NICs purposes.

This will allow HMRC to pursue an agency in the first instance for any payroll taxes that a non-compliant umbrella company fails to remit to HMRC on their behalf.  The end client will be liable if contracting directly with an umbrella company.

Where there is no agency, the responsibility will fall to the end client business.

This will take effect from 6 April 2026. The measure will protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.

Advance Tax Certainty Service

A new Advance Tax Certainty Service will be launched in July 2026. This will provide major investment projects in the UK with certainty on the application of tax law to their specific circumstances. Qualifying project expenditure must be at least £1 billion. Subject to full initial disclosure of all material facts, a clearance will bind HMRC for five years, and may be renewed for a further five years.

Expanding workplace benefits relief

This measure will introduce new legislative exemptions for the reimbursement of eye tests, flu vaccines and home working equipment. Under current law, the exemption only applies where the employer provides the benefit directly. This change will ensure that reimbursements are treated in the same way.

This will take effect on or after 6 April 2026.

Removal of tax relief on non-reimbursed homeworking expenses

This measure will remove the tax relief available to employees who have incurred additional household costs if they are required to work from home. These costs include increased household utility costs and business telephone calls.

It will only apply to those employees who have not had these costs reimbursed by their employer.

This will not impact the existing ability for employers that reimburse employees for costs relating to homeworking where eligible without deducting Income Tax and NICs.

This will take effect from 6 April 2026.

Employee Car Ownership Schemes (ECOS)

ECOS are not the same as the popular salary sacrifice schemes which are available for employees to acquire electric cars in a tax efficient manner. 

Under ECOS schemes, an individual may be sold a vehicle for a loan, often with an arrangement for the employer to buy the car back in the future. As the car is owned by the employee, the benefit in kind would be based on a beneficial loan, rather than under the company car rules. Individuals are also able to claim mileage for business travel.

However, the government considers that ECOS were being used to avoid company car benefit-in-kind charges. Therefore, under previously announced changes, the benefit would arise under the company car rules in certain circumstances, even if the employee owned the car.

Whilst the rules were due to apply from April 2026, in order to allow greater time for preparation and adaptation, the implementation has been delayed until 2030, with transitional arrangements in place until 2031.

Image rights

There will be clarification on the tax treatment of image rights relating to employment. This is to ensure all employment-related image rights are subject to Income Tax and both employee and employer National Insurance Contributions as employment income. The Government plans to legislate for this in the Finance Bill 2026/27, which will take effect from 6 April 2027.

Next steps 

As always, these articles provide an overview of the various measures available, and no action should be taken without seeking professional advice.  At Ritchie Phillips, we pride ourselves on providing clear, pragmatic advice to help businesses, individuals and families. If you’d like to discuss any of the above, please get in touch.