Beware mini-umbrella company fraud

Date posted: 3rd Jun 2021

HMRC are urging businesses to look out for the use of mini-umbrella companies (MUCs) to pay contractors supplying their labour via agencies and other intermediaries. Businesses need to be aware of the financial and reputational risks of such entities in their labour supply chain and carry out due diligence to minimise those risks.

You may have heard a BBC File on Four radio programme that highlighted the abuse of the £4,000 employment allowance by 48,000 companies set up to take advantage of the allowance to save employers national insurance. Such structures are also being used to avoid VAT and are currently being marketed as a means of side-stepping the “off payroll” working rules.

HMRC have identified criminals creating a series of MUCs that appear unconnected and claiming the NIC employment allowance of £4,000 for each company. The company is then struck off after about 18 months allowing the criminals to potentially avoid paying thousands of pounds of employers’ NICs.

The risks to end user organisation include becoming liable for unpaid taxes and national insurance contributions including the over claimed employment allowance.

The business may also be denied the right to claim input tax if the trader should have known their transactions were connected with VAT fraud.

They may also be penalised for criminal offences relating to national minimum wage and national living wage. The business may also face fines for failure to prevent the criminal facilitation of tax evasion.

Please contact us if you would like us to assist you in carrying out due diligence into your labour supply chain to minimise these risks.


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