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Hot on the heels of HMRC releasing guidance on working with umbrella companies come calls for action against the rise of mini umbrella company (MUC) fraud in the UK.

BBC Radio 4's File on 4 discovered that more than 48,000 mini umbrellas had been created in the last five years, with 40,000 people from the Philippines recruited to front them - costing the UK "hundreds of millions of pounds" in lost taxes.

Working in collaboration with the BBC to produce the report was the Freelancer and Contractor Services Association (FCSA), the trade body that represents legitimate umbrella companies, like NWM.

What is a mini umbrella?

The MUC model involves splitting a recruitment agency's contractor workforce in order to exploit government incentive schemes, including Employment Allowance - an annual discount of £4,000 per company on National Insurance contributions.

Businesses with an Employer NI bill of £100,000 or more in the previous tax year are unable to claim the allowance, so recruitment agencies employ temporary workers through a series of MUCs. Each mini umbrella only has a small number of workers and, therefore, qualifies for the Employment Allowance tax relief.

Additional threat

The amount of tax lost through the MUC model has led the UK government's Gangmasters & Labour Abuse Authority (GLAA) to declare them "an organised crime threat" to the UK Exchequer.

GLAA said: "For employees [contractors], who are often unaware of these arrangements, the use of this model can result in the loss of some employment rights. Workers are usually unaware of who their employer is, and they can be moved regularly between [MUCs] to help maximise profits from the fraud."

What is being done?

HMRC warned against the MUC schemes in 2015, and in light of the BBC 4 investigation, released updated guidance on MUC fraud to help raise awareness.

Responding to a report in Recruiter, HMRC noted that the 2017 Trader of Limited Cost Legislation was introduced after a surge in MUCs, helping "to remove some businesses setting up MUCs and hence reduced their number."

In the same report, HMRC stated that its Fraud Investigation Service continues to use its civil and criminal powers to challenge those involved in facilitating MUC fraud. Such action saw the deregistration of more than 22,000 MUCs believed to be exploiting the VAT Flat Rate Scheme and removing their access to the Employment Allowance.

Find out more

NWM is accredited by FCSA, which means we have demonstrated the highest standard of compliance in the professional employment services sector. To find out more about how our transparent and compliant umbrella solution works, connect with a member of our team on 0330 333 4240, email enquiries@nwm.uk.com, or head to the Contact Us page to request a callback.