With mini umbrella companies (MUC) at the forefront of recent news, it’s important that as a business, you are aware of how these schemes operate and how they can be of danger to your company. We’ve covered the basics on how to spot and avoid an MUC and the consequences that including such businesses in your supply chain may have.
What is a mini umbrella company (MUC)?
A mini umbrella company (MUC) is a model whereby small limited companies are established, with a small number of temporary workers employed within each. This tactic enables the limited companies to then benefit from reduced PAYE and National Insurance payments and taking advantage of the VAT Flat Rate Scheme. In our view, the vast majority of these schemes manipulate legislation, do not represent the reality of the underlying structure and are therefore committing income tax, national insurance and VAT fraud.
Mini umbrella companies are facilitated by a ‘promoter business’ and will often work alongside other linked businesses that support the operation. This can make identifying these fraudulent activities difficult as they typically sit low down within the supply chain, between complex layers of operation.
The danger to recruitment agencies
As an industry associated closely with temporary labour, it’s important that you are aware of the dangers that mini umbrella companies can bring to your supply chain.
Involving a mini umbrella company in your supply chain could be considered as criminal tax evasion under the General Anti-Abuse Rule. Not only this, but should you engage with such non-compliant tax schemes, your business could be at risk of huge reputational and financial damage.
As a recruitment agency, it’s important to maintain great relationships with candidates and of course, a well-paid candidate is a happy candidate. It might be tempting to offer a mini umbrella service with the promise of inflated rates and reduced tax payments, but it’s important to be aware that if caught using a non-compliant service in your supply chain, your workers will be left disappointed when they fail to receive what they believe they are entitled too.
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Spotting a mini umbrella company (MUC)
Spotting a mini umbrella company can be tricky, as they become more unconventional in their ways of hiding from HMRC. Some common warning signs to look out for are:
An unusual company name
Multiple companies are often set up around the same time and hold an unusual name which is not suitable for their aimed business activities.
Unrelated business activity
The businesses activity provided by the workers does not match those described on Companies House.
Foreign national directors
Foreign nationals with no previous experience in the UK labour supply industry are often listed as a mini umbrella company as a director. These can replace a temporary UK resident director after a short period of time.
Noticeably high movement of workers
You may notice that employees of mini umbrella companies may be moved frequently between different MUCs.
Short-lived businesses
You will notice that mini umbrella companies have a relatively short lifespan, often less than 18 months before being dissolved by Companies House due to them not meeting filing obligations.
For further guidance you can visit the GOV.UK website.
How to report a mini umbrella company (MUC)
If you think you may have come across a mini umbrella company, it’s best to get it checked out and report the case. You can do so by contacting HMRC online or via the phone on 0800 788 887.
Are mini umbrella's placing you at risk of criminal tax evasion?
Involving a Mini Umbrella company in your supply chain could be considered as criminal tax evasion under the General Anti-Abuse Rule.
For a limited time, our expert team are conducting a free, thorough review of your payroll processes and provide guidance on ensuring compliance and mitigating potential risks.
Book in your free, no-obligation review now