HMRC has issued updated guidance on the potential dangers posed to business and individuals by mini umbrella companies (MUC) in supply chains
HMRC is warning every business which either places or uses temporary labour to be aware of the potential dangers posed to their business by mini umbrella companies fraud in their supply chain as a fraudulent supply chain can lead to reputational and financial damage to businesses, and employees may not receive what they are entitled to.
The guidance states that ‘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’.
There are also a number of tips on how individuals can protect themselves from getting involved in mini umbrella companies. HMRC states that firstly ‘if you are an agency worker or contractor find out how and what you will be paid’. They also list a number of warning signs such as the use of unusual company names, unrelated business activity, foreign national directors, movement of workers and short-lived businesses, also known as transient businesses. It also states that you can check by completing regular due diligence checks.
HMRC warned: ‘Mini umbrella company fraud creates an uneven playing field for those employment agencies and businesses who follow the rules and presents an organised crime threat to the UK Exchequer.
‘The fraud is primarily based around the abuse of two government incentives aimed at small businesses, the VAT Flat Rate Scheme and the Employment Allowance. But this type of fraud can also result in the non-payment of other taxes such as PAYE, National Insurance and VAT.
‘Mini umbrella company fraud is not limited to specific trade sectors and can be found in supply chains whenever temporary labour is used.’
The updated guidance comes after mini umbrella companies made headlines recently when a BBC investigation by radio programme File on 4, found that that more than 40,000 people in the Philippines had been recruited to front British companies that would then employ staff as subcontractors for employers including G4S and NHS Covid-19 test centres.
Employers are responsible for paying 13.8% National Insurance contributions (NIC) on their employees’ earnings when an employee earns more than £170 per week. By outsourcing payroll to mini umbrella companies, recruitment agencies are able to reduce their NIC bill by using the government’s Employment Allowance, which offers an annual discount of £4,000 per company on NICs as an incentive to take on more workers.
HMRC Fraud Investigation Service is currently using both its civil and criminal powers to challenge those who are involved in and facilitating this type of fraud, adding that they have already made a number of arrests in relation to mini umbrella company fraud.