HMRC has published new guidance Mini umbrella company fraud explaining the background to the use of mini-umbrella companies (MUCs) and advising businesses how to check and protect their labour supply chains from potential fraud.
Mini-umbrella company fraud centres around the contrived use of the VAT flat-rate scheme and the NICs employment allowance – both of which are aimed at supporting genuine smaller businesses.
The BBC’s File on 4 programme recently uncovered widespread use of MUCs to employ workers in the UK, including in the public sector – for example, supply teachers and individuals employed as covid testers under the UK government’s subcontracted test and trace scheme. The arrangements operate by employing temporary workers through a series of MUCs. Each individual company employs a small number of workers and qualifies for the employment allowance, effectively relieving the employer of secondary NICs. When the allowance is fully used, the workers are transferred to a new MUC.
Many of the MUCs uncovered by the BBC investigation were recorded at Companies House as having directors in the Philippines, providing cover for those in the UK alleged to be promoting the schemes. As the BBC notes, the cumulative effect of the arrangements costs ‘hundreds of millions in lost tax revenue’.
A separate investigation by The Guardian found that many of the 50,000 workers deployed on test and trace had been supplied by outsourcing specialists rather than being recruited directly by the NHS, given the urgent need for rapid deployment during the coronavirus pandemic. Many of those workers appeared to be employed via MUCs. Workers interviewed by the newspaper reported ‘unusual’ payroll arrangements, including being moved to a new employer every few months.
Jo Maugham QC, director of The Good Law Project said: ‘It's not as though this is some tiny piece of tax avoidance – you know, where your local minicab firm isn't declaring all of the fares that it receives. This is industrial scale tax abuse.’
Employment status expert Rebecca Seeley Harris observed: ‘This, of course, is part of a wider problem of the use of umbrellas because of the employment status legislation in the UK. You can't fix one without fixing the other. Along with regulation of the umbrella companies, the government should be looking at responding to the employment status consultation which closed in June 2018.’
A further report in The Guardianon 11 May suggests that workers hired to conduct covid-19 tests at one of the new UK testing ‘mega labs’ have also been employed via MUCs.
HMRC’s guidance on MUCs appears to be aimed at the ‘end user or provider of temporary labour’, explaining that it is their responsibility to check who pays the workers and how those workers are paid. The BBC had previously uncovered the use of a similar scheme back in 2016, reporting that HMRC had promised to ‘pursue users and promoters’ of the scheme.
HMRC has published new guidance Mini umbrella company fraud explaining the background to the use of mini-umbrella companies (MUCs) and advising businesses how to check and protect their labour supply chains from potential fraud.
Mini-umbrella company fraud centres around the contrived use of the VAT flat-rate scheme and the NICs employment allowance – both of which are aimed at supporting genuine smaller businesses.
The BBC’s File on 4 programme recently uncovered widespread use of MUCs to employ workers in the UK, including in the public sector – for example, supply teachers and individuals employed as covid testers under the UK government’s subcontracted test and trace scheme. The arrangements operate by employing temporary workers through a series of MUCs. Each individual company employs a small number of workers and qualifies for the employment allowance, effectively relieving the employer of secondary NICs. When the allowance is fully used, the workers are transferred to a new MUC.
Many of the MUCs uncovered by the BBC investigation were recorded at Companies House as having directors in the Philippines, providing cover for those in the UK alleged to be promoting the schemes. As the BBC notes, the cumulative effect of the arrangements costs ‘hundreds of millions in lost tax revenue’.
A separate investigation by The Guardian found that many of the 50,000 workers deployed on test and trace had been supplied by outsourcing specialists rather than being recruited directly by the NHS, given the urgent need for rapid deployment during the coronavirus pandemic. Many of those workers appeared to be employed via MUCs. Workers interviewed by the newspaper reported ‘unusual’ payroll arrangements, including being moved to a new employer every few months.
Jo Maugham QC, director of The Good Law Project said: ‘It's not as though this is some tiny piece of tax avoidance – you know, where your local minicab firm isn't declaring all of the fares that it receives. This is industrial scale tax abuse.’
Employment status expert Rebecca Seeley Harris observed: ‘This, of course, is part of a wider problem of the use of umbrellas because of the employment status legislation in the UK. You can't fix one without fixing the other. Along with regulation of the umbrella companies, the government should be looking at responding to the employment status consultation which closed in June 2018.’
A further report in The Guardianon 11 May suggests that workers hired to conduct covid-19 tests at one of the new UK testing ‘mega labs’ have also been employed via MUCs.
HMRC’s guidance on MUCs appears to be aimed at the ‘end user or provider of temporary labour’, explaining that it is their responsibility to check who pays the workers and how those workers are paid. The BBC had previously uncovered the use of a similar scheme back in 2016, reporting that HMRC had promised to ‘pursue users and promoters’ of the scheme.
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