HMRC fraud alert over Mini-Umbrella Companies endorsed

A warning from HMRC for contractors’ agencies and end-clients to avoid ‘Mini Umbrella Companies’ has been endorsed by an independent compliance organisation.

But Professional Passport, which rubberstamped the Revenue’s new alert against ‘MUC’ fraud yesterday, says it is contractors themselves who should be aware as well.

In fact, the compliance organisation’s founder Crawford Temple says MUCs try to dupe many “innocent parties” – agencies, clients, but also workers, by posing as ethical businesses.

'Growing in number'

“[They’re not] new but have been growing in number,” Mr Temple said.

“They’re specifically aimed at the Employment Allowance and some try and claim [under the VAT] Flat Rate Scheme.”

Distinct from ‘loans’ to boost take-home pay, MUCs split up a temporary workforce into hundreds of small, limited companies, each formed with the sole aim of enabling the fraud.

'Complex layers'

Promoter firms then get bolted-on to the chain, partly just to add “complex layers” to the operation but also to facilitate it, HMRC said in the alert to stakeholders.

Circulated to firms who responded to its July call to help tackle disguised remuneration, the HMRC alert identifies five hallmarks of a MUC fraud, despite there being no standard model.

The five are; ‘unusual company name;’ ‘unrelated business activities;’ ‘foreign nationals as its directors’; ‘high worker movement’ and a ‘short-lived busines’ (typically under 18 months).

HMRC also warns that the registered address can seem unfitting for the business-type, and says a further red flag is many similarly named companies being set up around the same time.

“[The Revenue is] likely to issue a number of these [alerts]” predicts Mr Temple, who says he welcomes official guidance on how to spot a MUC.

'Remain vigilant'

The compliance specialist also told ContractorUK: “[HMRC are] heavily focussed on stamping out disguised remuneration schemes.

“They are also concerned that there is a rise in ‘schemes’ in general in the run up to the new off-payroll rules from April 2021.”

Near the end of its alert, and before directing the suspicious to its fraud line, HMRC acknowledges: “As the MUCs sit low down in the supply chain it may be challenging to spot them. [So] HMRC advises businesses to remain vigilant, especially where the employer of the worker is not the umbrella company they may have a contract with.”