Mini umbrella companies strike again

Mini umbrella companies have hit the news again as it’s become apparent that some dishonest and greedy recruitment agencies have engaged with them to pay their temporary candidates. Astonishingly, a BBC investigation found that mini umbrella companies were paying some Covid test centre workers. These pose a serious threat to workers and the economy. Keep reading and find out more.

What are mini umbrella companies?

A few months ago, the Umbrellacompanies.org.uk Team published an article called ‘Mini Umbrella Companies” (MUC) Are The Latest Thing To Try And Give The Marketplace A Bad Name’. Unfortunately, mini umbrella companies have made the news again, and it’s extremely concerning.

According to HMRC, mini umbrella companies are “an employment intermediary model which presents an organised crime threat to the UK Exchequer The fraud is primarily based around the abuse of two 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.”

The latest news regarding mini umbrella companies

An investigation undertaken by the BBC Radio 4’s File on 4 team has found that unethical mini umbrella companies have targeted over 40,000 Filipinos to front UK-based payroll organisations. Remarkably, some of these mini umbrella companies have been used to process the payroll of NHS workers operating from Covid test sites ran by G4S throughout the UK.

Putting it simply, some agency workers in the UK have discovered that they’re being paid by a company they’ve never heard of and having looked into the businesses in more information, it’s become apparent that they were set up within the last couple of months. But what are these companies, and why do they exist?

Mini umbrella companies help organisations pay less than their fair share of tax. They are tax avoidance schemes. If a recruitment agency outsources their payroll to a mini umbrella company, they can take advantage of savings on National Insurance Contributions. This is done by exploiting the government’s Employment Allowance – a reduction of £4k per company for National Insurance Contributions. Mini umbrella companies allow agencies to benefit from this reduction – thus paying less tax and retaining more money for themselves. A truly scandalous arrangement that could land hard-working and honest NHS workers is serious trouble with HMRC, as we’ll explain later.

Unbelievably, the File in 4 investigation found that over 48,000 mini umbrella companies had been created in the UK in the last five years. That works out as 9,600 per year and over 26 per day!

What are the experts saying?

The original BBC article includes some very interesting quotes from industry specialists, so we wanted to share them with our readers.

The Good Law Project is a campaigning group founded by Jo Maugham. Regarding mini umbrella companies, Jo said:

“It’s not as though this is some tiny piece of tax avoidance – you know, where your local minicab firm isn’t declaring all of the fares that it receives. This is industrial scale tax abuse.

I mean it’s really absolutely extraordinary, hundreds of millions of pounds if not billions of pounds is likely to have been lost due to HMRC’s apparent disinclination to tackle this abuse.”

Also, Anneliese Dodds, the former shadow chancellor, shared her thoughts about mini umbrella companies and made it clear that she believes the government and HMRC should be doing more to stop these tax avoidance schemes. She said:

“We do need to see greater action being taken by HMRC… and the Conservative government really should have been facing up to this, because certainly, the alarm bell has been rung by many over many years.”

What are the risks of engaging with mini umbrella companies?

If somebody hasn’t paid the right amount of tax, HMRC will probably find out and will do everything in their power to reclaim it. It’s proven almost impossible to hold the founders of tax avoidance schemes liable in the past because, by the time HMRC identifies an unethical tax arrangement, the Directors have shut it down and fled. However, this doesn’t stop HMRC. Instead, HMRC will seek those who’ve used the unethical scheme to reclaim unpaid tax. Therefore, even if workers have no knowledge they’ve engaged with a tax avoidance scheme, they could be faced with a life-changing tax bill.

No temporary worker should be worried about being paid by an unknown third party. However, the latest news on umbrella companies is profoundly concerning. Therefore, if you are required to use an umbrella company, we recommend speaking with your agency about their preferred supplier list (PSL). By all means, bring mini umbrella companies up and ask what assurances the agency has taken to protect its candidates.

Our recommendation is simple – we suggest you only use an FCSA or Professional Passport accreditation umbrella company for your payroll. And, always check your payslips carefully and see if it all makes sense. If you have any questions at all – speak with your agency or umbrella, and contact HMRC if you suspect foul play.

Top 10 umbrella companies

If you’re interested in using an umbrella company for your payroll, we recommend you only consider FCSA and Professional Passport accredited ones. These are the two most respected professional bodies in the UK dedicated to ensuring the supply chain of temporary workers is compliant with HMRC rules and regulations.

To make your life easier, we recommend you check out our top 10 umbrella companies. They’re all accredited by either the FCSA or Professional Passport, so you’ll be in the safest hands.

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