The explosion in dodgy umbrella schemes needs to be the catalyst for further focus on compliance in our sector and stop the exploitation of workers and the taxpayer by these unscrupulous suppliers who are pocketing thousands of pounds a week.
What is mini umbrella fraud?
The Mini Umbrella Company (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.
By engaging with Mini Umbrella Companies, contractors can 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.
Liquid Friday all the way!
Since 2018 we have been warning anyone that would listen of the rise of Mini-Umbrella and the devastation they will leave in their wake when HMRC catches up with them. (Although it seems the BBC have gotten there first).
Where HMRC is unable to recover the loss to the Exchequer, which will be in its millions by now, the lost tax will be recovered from the Agency or the Worker themselves.
We pride ourselves on always doing the right thing at Liquid Friday. We are an FCSA Accredited Umbrella provider and audited REC Business Partner that actively works with Government and HMRC, not against them, to fight for the rights of contractors and agencies.
These unscrupulous providers place the entire supply chain at risk and no regard for the wellbeing of the worker, we champion our industry and protect our 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 foreign 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.
- We sincerely hope that no-one reading this has already been affected by recent events, however if you have, or if you are just concerned about mini-umbrella, please talk with us.
Expose the bad to highlight the good
Stories like this need to continue to expose poor practice in our sector, which in turn must highlight good practice.
Its time to focus on compliance and not be led by increased margins, or “too good to be true” take home pay, which is always at the cost of the supply chain compliance and the taxpayer.
The best way forward is to stick with industry names that you know and trust like Liquid Friday, and businesses that are accredited by the FCSA.