HMRC have issued information on fraud being committed by a number of Mini Umbrella Companies.
HMRC claim that every business which either places or uses temporary labour should be aware of the potential dangers posed to by mini umbrella company fraud.
Not only can a fraudulent supply chain lead to reputational and financial damage to your business, but your workers may not receive all they’re entitled to. Mini umbrella company fraud also significantly reduces tax payments to HMRC including PAYE, National Insurance and VAT.
As an end user or provider of temporary labour it is your responsibility to be clear about who pays the workers and how they are paid. This is the only way to protect your business from becoming involved in mini umbrella company fraud or other supply chain fraud.
If you are an agency worker or contractor and work through an umbrella company find out about how and what you’ll be paid.
What mini umbrella company fraud is
There is no standard model and arrangements constantly evolving as organised criminals try to hide their fraudulent activities.
These criminals create multiple limited companies and only a small number of temporary workers are employed by each one. These are set up to enable fraud.
The structuring of the mini umbrella companies is facilitated by a promoter business (sometimes also known as an outsourcing business) which may have other linked businesses to support the operation. The creation of the mini umbrella companies and the complex layers of businesses within the supply chain help to facilitate the fraud.
Businesses that uses temporary labour, you should be aware of the potential dangers of mini umbrella company fraud in the labour supply chain.
The impact of mini umbrella company fraud
Mini umbrella company fraud creates an uneven playing field for those who follow the rules and presents an organised crime threat.
The fraud is primarily based around the abuse of 2 government incentives aimed at small businesses – the VAT Flat Rate Scheme and the Employment Allowance.
This type of fraud can also result in the non-payment of other taxes such as PAYE, National Insurance and VAT.
For employees, who are often not aware of these arrangements, the use of this model can result in the loss of some employment rights. Workers in mini umbrella companies usually do not know who their employer is and they can be moved regularly between mini umbrella companies to help maximise profits from the fraud.
Warning signs
A good starting point is to complete regular due diligence checks.
Some signs to look out for:
Unusual company names
Multiple companies are often set up around the same time and given a similar or unusual name. The registered address may not seem suitable for their types of business activities.
Unrelated business activity
The business activities listed on Companies House entries will often not relate to the services provided by the workers.
Foreign national directors
Foreign nationals who have no previous experience in the UK labour supply industry, are often listed as directors. They can replace a temporary UK resident director after a short period of time.
Movement of workers
Employees may be moved frequently between different mini umbrella companies.
Short-lived businesses (also known as transient businesses)
Mini umbrella companies often have a relatively short lifespan (often less than 18 months) before being allowed to be dissolved by Companies House as they do not meet filing obligations. New mini umbrella companies will then take their place in the supply chain.
What HMRC is doing about mini umbrella fraud
HMRC’s Fraud Investigation Service is using both its civil and criminal powers to challenge those who are involved in and facilitating this type of fraud, and working with trade bodies and other government departments to raise awareness.
HMRC has made a number of arrests in relation to mini umbrella company fraud.
Checks you can carry out
If a business is using or providing temporary labour it is their responsibility to:
- undertake necessary and proportionate due diligence checks
- be clear who pays workers and how they are paid
- check the credibility of the supply chain
Completing these checks will help safeguard business from financial, operational and reputational risks.
For more information read:
Report potential fraud or tax evasion
Contact HMRC if there are concerns about a supplier, hirer of labour or associated activities.
Report someone if you think they’re evading tax.
Get more information
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PAYadvice.UK 10/5/021
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