In this article, we will go in detail to explain you about the mini umbrella company fraud and how you can identify and avoid them.
Mini umbrella company is a fraud model operated by organised criminals trying to hide their fraudulent activities from HMRC, and they are a big threat to the temporary workforce.
Mini umbrella companies operate using multiple limited companies and employ only a small number of temporary workers in each company to carry out this fraud. A mini umbrella company structure is very complex and difficult to track because it is linked with multiple businesses to facilitate the operation, mostly carried out with the help of an outsourced business.
Workers that are appointed by mini umbrella companies are often unaware of who their employer is and are constantly moved between companies to maximise profit from this fraud. This also means that the workers lose on some of the employment rights.
Mini umbrella companies mainly abuses 2 government incentives:
- VAT Flat Rate Scheme
- Employment Allowance
Temporary workers don’t get the benefits they are entitled to and the tax payments to HMRC are significantly reduced, which can include PAYE, National Insurance and VAT. Besides being an organised crime threat, they create an uneven playing field for those employment agencies and business who follow the rules.
How to spot a mini umbrella company?
It is challenging to spot a mini umbrella company as on the surface, everything may look legit. Regular due diligence checks are essential to spot such companies.
The company name and the business activities listed on the Companies House often work as an indicator. You may find multiple companies set up around the same time with a similar or unusual names. Often their business activities would not match the services provided by the workers.
The director of the mini umbrella company may be a foreign national with no previous experience in the UK labour supply industry. If you find that they have replaced a temporary UK resident director after a short period of time, then there is a high chance that the company in question is running a mini umbrella company fraud.
It is also important to note that these businesses have a short life span (often less than 18 months). The company is shut down to avoid obligatory filing requirements. A new mini umbrella company replaces the closed company to carry out the fraud and the employees are moved between the companies.
To summarise, following are the key indicators of a mini umbrella company fraud:
1. Unusual company names
2. Unrelated business activity
3. Foreign national directors
4. Movement of workers
5. Short-lived businesses
HMRC’s Fraud Investigation Service is working hard to tackle this issue and are using everything within their power to challenge those involved in this fraud and facilitating it.
HMRC has also deregistered thousands of mini umbrella companies who they believed were involved in either exploiting the VAT Flat Rate scheme or exploiting the Employment Allowance or both.
Ways to report Mini Umbrella Companies
If you believe that a company is involved in mini umbrella company fraud, you can report them to HMRC. Click here to report them.
There are other ways to report them as well.
You can contact the HMRC fraud hotline if you cannot use the online service.
Telephone: 0800 788 887
Outside UK: +44 203 080 0871
Monday to Friday, 9am to 5pm
Disclaimer
This article is for information purposes only. We strongly recommend taking professional advice or an expert opinion before reaching any conclusion. We have a team of experts who can help you with your queries, please feel free to review them. You can also write us an email at [email protected].