Mini-umbrella is an arrangement where a seemingly compliant umbrella employs it’s workers through lots of small companies (or mini-umbrellas) in order to receive the employment allowance and/or access the flat rate VAT scheme. HMRC view this type of employment intermediary model as an organised crime threat to the UK Exchequer because it abuses two incentive schemes (employment allowance and flat rate VAT) designed to support small businesses.
In its simplest form the mini-umbrella fraud model involves splitting up a workforce into hundreds or thousands of small limited companies set up solely to enable the fraud. The workforce is generally a temporary workforce who historically would have been paid by an employment agency or an umbrella company. Workers in mini umbrellas are usually unaware of who their employer is and they can be moved regularly between companies to help maximise profits from the fraud. In addition, the use of this model can result in the loss of some employment rights.
Your recruitment agency should do it’s due diligence on the payment supply chain, so they should have already checked that the business paying you is not operating a fraudulent scheme. Possible indicators of mini-umbrella include:
- Often multiple companies are set up around the same time which have a similar or unusual name. These companies will often be registered at an address which does not seem suitable for the types of business activities.
- Unrelated business activity description at their Companies House entry.
- Often foreign nationals are appointed as directors of the numerous mini companies, and some will be paid a fee for doing so. Usually the directors will have no prior experience in the UK labour supply industry, and this can be checked at Companies House.
- Workers being moved between different employers on a fairly frequent basis can also be an indicator, particularly if the numerous employers meet the above criteria. Check your payslips match who you believe your employer to be.
- The individual mini companies have a fairly short lifespan (often less than 18 months) before being dissolved by Companies House as a result of their failure to meet their filing obligations. Workers should then receive a new Key Information Document each time they are moved to a new mini company.
HMRC’s Fraud Investigation Service is using both its civil and criminal powers to challenge those who are involved and facilitating this type of fraud. HMRC has recently made a number of arrests in relation to mini-umbrella fraud and has also taken steps to deny the right to recover input tax in cases where it has established that a business in the supply chain knew, or should have known, that there was fraud.