November 14, 2025

The Great Faux-sultancy: When Recruiters Become “Consultancies” to pump up margins and Dodge Tax (and the IR35 Timebomb)

Fake consultancies causing tax headaches for their clients.
Lately, the fake hasn’t just been the endless torrent of AI-generated emails in my inbox or the “passive income” gurus on LinkedIn. It’s the way some businesses are fundamentally trying to lie about what they are.
 

And trust us, after 20+ years watching this game, our cynicism alarm is screaming.

The latest trend we are seeing—and one that should have VCs and Founders running for the hills—is the Recruiter-Turned-Consultancy setup. It’s an immediate, massive IR35 red flag, and it’s the professional equivalent of risking your life on a rusty park slide in budgie smuggler swim trunks. 
 
With HMRC ramping up their recruits looking for these exact arrangements UK based Enterprise, SME’s and start ups alike should ensure they see past the labels and have their compliance game on point.
 
 
The High-Risk Setup: A PSC with One Mate
 
Forget the noise about Control, MOO, and Substitution for a moment. HMRC’s antennae go up when things just smell wrong. And this setup stinks of tax avoidance.
 
The classic, high-risk scenario is this:
  1. A long-serving employee or contractor (or maybe a recruiter who worked closely with a client) leaves a major SaaS scale-up (let’s call them “Client X”).
  2. They immediately set up a shiny new Limited Company, call it “Innovate Strategy Services,” and start supplying contractors only to Client X.
  3. The contract? It’s a “mates agreement.” A handshake, a wink, and a verbal promise that they’re a “consultancy” providing a managed service—not just a poorly equipped inexperienced recruitment firm.
What are you, really?
 

If you have one client, no other sales pipeline, no proprietary IP, no financial risk (your entire business folds if Client X walks away), and you’re just billing for the day-rate of the people you place… you are a recruitment agency. End of.

Calling yourself a “Consultancy” doesn’t magically turn your business into a fully contracted-out service. It’s not a virtue-signalling post; it’s a legal definition.  Add to that If you are charging crazy high margins to the cost of your end client and your contractors then you’re a “£$%^&*(!
 
 
The IR35 Timebomb for the Scale-Up
 

Under the new Off-Payroll rules, the End Client (Client X) is responsible for determining the IR35 status of the worker.

Now, if Client X engages “Innovate Strategy Services” on the lie that they’re a genuine outsourced service—meaning the ‘Consultancy’ should manage the IR35 status—they have fundamentally dropped the ball. They have failed to take “reasonable care.”
Here is the disaster when the HMRC audit hits:
  • The Intermediary is the Fee Payer: That brand-new, single-client “Innovate Strategy Services” (the Faux-sultancy) becomes the Fee Payer.
  • The Liability: When HMRC proves that the contractors supplied are Inside IR35 (because they’re acting like employees of Client X), the tax liability for all unpaid Income Tax and National Insurance falls squarely on that Faux-sultancy.
  • Insolvency: A single-client company with no balance sheet can’t pay a retrospective multi-million-pound tax bill. It goes bust.
  • The Boom goes back to Client X: When the Fee Payer goes bust, HMRC can and will chase the End Client (Client X) for the liability, arguing they failed in their duty of reasonable care by allowing this sham structure to exist in the first place.
You wanted a cheap, single-source recruitment channel? You just bought yourself a multi-million-pound tax and legal headache.
 
 
Authenticity is the Superpower: Call Out the Fakes
 

Our founder  said it in one of his blog posts: Don’t let the fakes in life rent space in your mind. That applies to your vendors, too.

If a “Consultancy” is knocking on your door, and their only business is based on a mate’s agreement, a flimsy contract, with inflated prices for the same service under another name… step back. Question everything. 

If you’re the line manager signing off on that, realise your CEO is likely to be displeased you chose to help your mate out with his new gig.  Getting lousy value and an HMRC tax bill for your trouble.

Being authentic in this AI-driven, fake world means being honest about your intentions and your business model.
  • If you’re a recruiter, be a great recruiter.
  • If you’re a genuine consultancy, prove it with multiple clients, clear SOWs, and financial risk.
If you are a Founder, value the genuine partners who are honest about their services and can back up their claims. These are the people who will actually help you scale fast, not leave you with a crippling tax bill a year down the line. Find the authentic people, and support them. You will be stronger together.
 

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