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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. Having a mini umbrella company in your supply chain comes with a handful of consequences; one of which being the potential for  huge reputational and financial damage to your business.

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.

Read more on why supply chain due diligence is important.

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 or alternatively head over to our LinkedIn for more advice on spotting tax avoidance schemes.

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.

How can we support you?

With HMRC shifting their focus onto monitoring supply chains now that mini umbrella companies are becoming more prolific, Bar2 are doing all we can to support you and help ensure your supply chain is fully compliant.

Our range of services ensure you can demonstrate your due care and not incur any undue financial risk. We can help assist you in ensuring your supply chain is legitimate, protecting your flexible workforce and safeguarding your business.

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