BBC Exposes Mini Umbrella Company Fraud

A BBC investigation has revealed more than 40,000 people from the Philippines have been recruited to front mini umbrella companies in the UK, with some staff at NHS Covid test centres being engaged via this kind of scheme.

How mini umbrella companies work

Mini umbrella companies are not new, in fact they have existed in the labour market for several years, and they operate by engaging workers through lots of small companies (or mini-umbrellas) in order to receive the employment allowance which reduces a company’s NICs bill by £4k annually, providing their class 1 NICs were less than £100k the year prior.  Mini umbrella companies simply close once they reach the £100k threshold, then opening a new company in order to once again benefit from the £4k allowance.

Each mini umbrella company needs a director, and are usually incorporated with a British director initially, often recruited via social media and paid £150 for “fronting” the company.  Once the company has been established, and relevant HMRC and Companies House correspondence forwarded on, the UK director usually resigns to be replaced by an overseas director, often from the Philippines.

HMRC warning to engagers of temporary workers

Whether or not mini umbrella companies are acting fraudulently, agencies and the whole supply chain need to beware as HMRC have stated their view very clearly:

“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.” 

HMRC has also taken action to deny the right to recover input tax in cases where a business in the supply chain knew, or should have known, that there was fraud.  In other words, there could be a hefty VAT cost to businesses in the supply chain that engage their workers via mini umbrella companies.

In response to the BBC investigation, HMRC has issued specific guidance in relation to so-called mini umbrella company fraud.  Interestingly, some tax advisors have queried the term “fraud” stating that these businesses are legitimately using the allowance, albeit in a contrived manner.  Notwithstanding, agencies and the supply chain should heed HMRC’s warning!

NHS Test & Trace

The BBC investigation has established that mini umbrella companies have been used to engage temporary workers at some NHS COVID test centres run by G4S.  They cite an example of a worker who had no idea that he was not being paid by G4S until he noticed his payslip was from a company he had never heard of.  He looked it up on Companies House and found it was only set up a month before he started his job – and its director was from the Philippines.

G4S said that, when this came to its attention, HMRC was notified.  The company also said it was taking steps to ensure that all agency workers were employed directly and not via a subcontractor.

How prevalent is mini-umbrella company fraud?

Of course, it’s not just the health sector that is affected.  Mini-umbrella companies have long been part of the labour market, particularly where margins are tight as they can undercut compliant businesses due to making savings on the employment allowance.  They seem to have gone unchecked for many years, however HMRC are now taking decisive action as they have recently deregistered more than 22,000 mini umbrella companies thought to be involved in such schemes.

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