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Every business which either places or uses temporary labour should be aware of the potential dangers posed to their business by mini umbrella company fraud in their supply chain. Not only can a fraudulent supply chain lead to reputational and financial damage to your business, but your workers may not receive all they’re entitled to. Mini umbrella company fraud also significantly reduces tax payments to HMRC including PAYE, National Insurance and VAT.
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. This is the only way to protect your business from becoming involved in mini umbrella company fraud or other supply chain fraud.
What mini umbrella company fraud is
There is no standard mini umbrella company fraud model and arrangements are constantly evolving as organised criminals try to hide their fraudulent activities from HMRC.
These criminals create multiple limited companies and only a small number of temporary workers are employed by each one. These are set up to enable fraud.
The structuring of the mini umbrella companies is facilitated by a promoter business (sometimes also known as an outsourcing business) which may have other linked businesses to support the operation. The creation of the mini umbrella companies and the complex layers of businesses within the supply chain help to facilitate the fraud.
If you are a business that uses temporary labour, you should be aware of the potential dangers of mini umbrella company fraud in your labour supply chain.
The impact of mini umbrella company fraud
Mini umbrella company fraud creates an uneven playing field for those employment agencies and businesses who follow the rules and presents an organised crime threat to the UK Exchequer.
The fraud is primarily based around the abuse of 2 government incentives aimed at small businesses — the VAT Flat Rate Scheme and the Employment Allowance. But this type of fraud can also result in the non-payment of other taxes such as PAYE, National Insurance and VAT.
Warning signs
As mini umbrella companies are low down in the supply chain it may be challenging to spot them. You must be vigilant, especially where the employer of the worker is not the umbrella company you have a contract with.
A good starting point is to complete regular due diligence checks. Some signs to look out for:
Unusual company names Multiple companies are often set up around the same time and given a similar or unusual name. The registered address may not seem suitable for their types of business activities.
Unrelated business activity The business activities listed on Companies House entries will often not relate to the services provided by the workers.
Foreign national directors Foreign nationals who have no previous experience in the UK labour supply industry, are often listed as directors. They can replace a temporary UK resident director after a short period of time.
Short-lived businesses (also known as transient businesses) These individual mini umbrella companies have a relatively short lifespan (often less than 18 months) before being allowed to be dissolved by Companies House as they do not meet filing obligations. New mini umbrella companies will then take their place in the supply chain.
I don't know about you, but all I can think of is ALARM BELLS
George Bernard Shaw had it right:
"He who can does; he who cannot, teaches."
https://www.visittheusa.co.uk/
The VAT flat rate scheme works by the MUC paying a flat rate of VAT, for financial services it is 13.5%, and the MUC keeps the difference between that and the normal VAT rate , 20%, it charges its customers.
The employment allowance is a scheme whereby eligible employers (if you were a business and your class 1 national insurance liabilities were less than £100k in the prior financial year) can reduce their annual national insurance liability by £5,000. If you are part of a group then it is one claim only, similarly if you have more than one payroll then you can only claim against one of the payrolls.
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HMRC / Preventing mini-umbrella company fraud on 13:35 - May 4 with 3093 views
HMRC / Preventing mini-umbrella company fraud on 12:35 - May 4 by watford_dale
The VAT flat rate scheme works by the MUC paying a flat rate of VAT, for financial services it is 13.5%, and the MUC keeps the difference between that and the normal VAT rate , 20%, it charges its customers.
The employment allowance is a scheme whereby eligible employers (if you were a business and your class 1 national insurance liabilities were less than £100k in the prior financial year) can reduce their annual national insurance liability by £5,000. If you are part of a group then it is one claim only, similarly if you have more than one payroll then you can only claim against one of the payrolls.
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