Mini umbrella company (MUC) fraud reduces tax payments to HMRC including PAYE, National Insurance and VAT. This has resulted in a fraudulent supply chain leading to financial and reputational damage to businesses and workers.
What is Mini Umbrella Company Fraud?
The fraud is usually based around the abuse of two Government incentives which are aimed at small businesses – the VAT Flat Rate Scheme and the Employment Allowance. However, this type of fraud can also result in the non-payment of other taxes such as PAYE, National Insurance and VAT, reducing vital funding for the public services that are relied heavy on. MUC fraud is targeted at specific sectors, which means this can be found in supply chains wherever temporary labour is used. The fraud usually involves separating a workforce (employees) into hundreds or sometimes thousands of small limited companies which are purely setup to commit fraud. The workforce are usually temporary workers or contractors who will have been paid via an umbrella company or recruitment agency.
Employees under the MUC model are often unaware who they are employed through or that they are employed through a mini limited company, which can often result in loss of employment rights. Under this scheme, employees are moved frequently between mini umbrella companies, resulting in the Mini Umbrella Company gaining inflated profits from the fraud!
A good starting point would be starting with some basic due diligence checks, such as checks on companies house. Some signs to look out for include:
- An unusual company name, which is often registered to an address that does not seem suitable for the types of business activities.
- Unrelated business activity description – cross reference the activities described on companies house to the services they provide to the “employees”. Are they of a similar description?
- An unusual high volume of employees being moved frequently between Mini Umbrella Companies
- If the “limited company” is trading for a short period of time, usually less than 18 months. They will be disbanded from Companies House due to their failure to meet obligatory filing
HMRC suggests businesses should remain cautious, even more so when the employer of the employee is not the umbrella company that they have an employment contract with.
The Mini Umbrella Company Fraud creates and causes an unfair playing field for those employment agencies and umbrella companies that do follow the rules and are compliant.
Here at ePayMe, we pride ourselves on our compliance. We are not just an “umbrella company”. Our teams of payroll experts are always on hand to provide up to date industry knowledge and legislation. Check out our glowing reviews on https://offpayroll.org.uk/ and please feel free to get in touch on 01252 863 700 or email in to sales@epayme.co.uk