HMRC has warned recruitment businesses to be wary of possible Mini Umbrella Company (MUC) fraud in their supply chain, especially as reliance on temporary labour increases in the UK.
By engaging with Mini Umbrella Companies, contractors are able to increase their take-home pay, but not without consequences.The higher remuneration comes from non-payment of taxes including PAYE, NICs and VAT to HMRC. Anyone using these types of schemes (knowingly or not) will be liable for any underpayments of tax and NIC as well as a substantial penalty.
What is Mini Umbrella Company fraud?
The MUC model is an employment intermediary model which primarily abuses two government incentives aimed at small businesses – the VAT flat rate scheme and the Employment Allowance. It can also result in the non-payment of other taxes such as VAT, PAYE and NICs.
MUCs work by splitting up a temporary workforce into hundreds of small limited companies, which are set up solely to enable the fraud.
Scarily, this type of fraud can potentially crop up in any sector where temporary labour is used and where there are employment agencies or umbrella companies in the supply chain.
How to spot an MUC
There isn’t a standard MUC fraud model and the tricky thing is that scheme promoters will constantly evolve the arrangements in order to hide their activities from HMRC.
However there are a few tell-tale signs recruiters can watch out for while doing their Due Diligence on suppliers:
- Unusual company name: multiple companies will be set up around the same time which have a similar or unusual name. The registered address often won’t seem suitable for the types of business provided by the workers.
- Unrelated business activity description: where the business activities listed on Companies House don’t relate to the services provided by the workers.
- Directors being foreign nationals: Often forign nationals are listed as directors who have no prior experience in the UK labour supply industry.
- Unusually high movement of workers between companies: workers engaged by MUCs tend to be moved between different employing companies on a regular basis.
- Short-lived businesses: MUCs have a short lifespan and are often around for 18 months or less before being dissolved by Companies House for failing to meet their filing obligations.
FCSA all the way!
Now more than ever, it is vital for recruitment agencies to do thorough Due Diligence on every company in their supply chain to ensure they do not get unwittingly caught up with an MUC, or indeed any other type of non-compliant payroll solution.
The best way forward is to stick with industry names that you know and trust, and businesses that are accredited by the FCSA.