The File on 4 programme highlighted that 48,000 MUCs have been established since 2016 with 40,000 individuals recruited to “front” them. Disguised as a legitimate trading umbrella, the company only has to employ a few workers to take advantage of the UK’s tax relief on Employer’s National Insurance and the Flat Rate VAT scheme. These reliefs are worked mainly to the advantage of the organisers behind the MUC but high yields are marketed to attract workers to be employed and placed on the MUC’s payroll. Industry commentators are blaming the update to the IR35 off-payroll working rules as the trigger for increasing usage.
MUCs pose a serious threat to the supply chain leading to reputational and financial damage and workers not receiving statutory employment benefits. MUCs contribute less tax to HMRC including PAYE, National Insurance and VAT so any shortfalls will be sought from fee-payers in the supply chain.
MUCs are characterised by the appointment of Filipino directors. The Philippines are targeted as there is no double-taxation treaty with the UK.
On the surface, a MUC could look like a ‘normal’ umbrella, with the recruitment company paying all monies in to a single bank account for all their workers. Evidence provided on contracts and payslips may also look like a ‘normal’ umbrella. Often these arrangements are run with very low fees applying. The BBC discovered they form part of a complex web designed to shield firms from the full costs of employing workers.
The key difference between a legitimate umbrella company and a MUC is that, behind the scenes of a MUC there is an array of small companies typically employing only a few workers. The low turnover enables the MUC to claim the employment relief on Employer’s National Insurance and, in some cases, utilise the Flat Rate VAT Scheme.
Indicators of a Mini Umbrella Company
Odd company name
A number of companies are established around the same time having a similar or unusual name and registered at an address that does not seem appropriate for the type of business it is undertaking.
Inconsistent business description
The nature of the business’ activity is not consistent with the services provided.
Foreign national directors
It is usual for a foreign national to be appointed as a director or replace a temporary UK resident director after a short time. The directors have little to no experience in the UK employment market.
Rapid movement of workers
Workers move frequently and with ease between different “employers” that are MUCs.
Short Lived businesses
MUCs have a relatively short lifespan and are dissolved by Companies House when they fail to meet their filing obligations.
Contractors and agencies alike are urged to take care when selecting an umbrella company and to avoid MUCs. They pose a significant threat and the exposure and closure of a MUC is not being enforced proactively.
At Umbrella Exchange we undertake the necessary due diligence on all umbrella companies on our preferred panel and can confirm there are no mini umbrella companies engaged or discussed with contractors.
