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HMRC issues warning against mini-umbrella

Mini-umbrella arrangements have long been operating within the supply chain of temporary workers, and HMRC has finally issued a warning to the supply chain against this type of fraud. It has been growing in traction in recent years, however there has been inadequate awareness regarding why these schemes are not compliant. Indeed these schemes can appear, on the surface, to be very similar to a compliant umbrella.

The main difference is that the scheme involves splitting the workforce into many hundreds of different mini limited companies in order to facilitate fraudulent access to the employment allowance and/or the flat rate VAT scheme. Both of these are government incentives that support small businesses.

HMRC warns that the supply chain who engage these firms ought to be able to spot them through their regular due diligence checks when completing their quarterly Employment Intermediary Reports or the Key Information Document for workers.

Of course any reputable agency in the supply chain will always consider the credibility of their suppliers and the payment arrangements for their workers in order to minimise their own risks and protect their workers. For more details on due diligence see our article.

Importantly, HMRC’s warning about mini-umbrella confirms that they have denied input tax when they have reason to believe that a business in the supply chain knew, or should have known that there was fraud. In other words using a mini-umbrella will potentially have a very real financial cost to businesses further up the supply chain, so the importance of due diligence cannot be over-stated.

It is very positive to see HMRC taking proactive steps to educate the supply chain about mini-umbrella fraud. It has been going on for a number of years and we really do hope that increased awareness of the schemes will make it difficult for them to continue profiting from unsuspecting workers and the business that engage them. Sometimes HMRC guidance seems to be inadequate or unclear, however this latest warning is extremely clear and assuming it is cascaded far and wide it has the potential to be very effective.

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