Mini-umbrella companies set up to avoid tax

by Ruby Flanagan

Reporter, Accountancy Daily

10 May 2021

Around 48,000 mini-umbrella companies (MUC) have been created in the past five years in a bid to reduce the tax and national insurance contributions (NIC) paid by recruitment agencies

A BBC investigation by radio programme File on 4 found that that more than 40,000 people in the Philippines had been recruited to front British companies that would then employ staff as subcontractors for employers including G4S and NHS Covid-19 test centres.

The investigation discovered that people were being recruited through Facebook and word of mouth, with the only qualifications to get the job being access to an internet connection, a mobile phone number, an email address and an ID document.

The BBC investigation found that the mini-umbrella companies tended to incorporate in the UK with a British director, who would then resign after a short period of time with a Filipino director appointed in their place. One example in the investigation was a contractor working for G4S at a Covid-19 testing site who gained the job through an agency called HR Go Recruitment. His payslip stated that he was not being paid by G4S but another company that was only a few weeks old with a director based in the Philippines.

The mini-umbrella companies can claim the government’s employment allowance, which offers an annual discount of £4,000 per company on national insurance contributions (NICs) as an incentive to take on more workers. Without this, the employer would pay 13.8% in NICs on employee earnings if they earned more than £170 per week.

Mini-umbrella companies split up a temporary workforce into hundreds of small limited companies, with the sole purpose of enabling the fraud. There are usually promoter businesses who facilitate the fraud and will link other companies to the operation to create intricate layers.

An HMRC spokesperson said: ‘Our Fraud Investigation Service is using its civil and criminal powers to challenge those who are involved and facilitating the MUC fraud, including recently deregistering more than 22,000 MUCs who we believe are exploiting the VAT Flat Rate Scheme and removing their access to the Employment Allowance.

‘We have also made a number of arrests in relation to MUC fraud and also taken steps to recover input tax in cases where it has established that a business in the supply chain knew, or should have known, that there was fraud.’

Some of the hallmarks of MUC fraud include unusual company names, unrelated business activity descriptions on Companies House, foreign nationals listed as directors, unusually high turnover of workers, and short periods of being established. HMRC is also working closely with government departments and trade bodies to increase awareness of the risks involved with engaging with a mini-umbrella company fraud model.

Andy Sanford, a partner at Blick Rothenberg, said: ‘Increased complexity in the UK's tax system allows people to take advantage of these incentives and this needs to be addressed urgently or others will do this too.

‘Companies House and HMRC need to work more closely and put in place electronic flags and AI systems to make sure this does not happen again.

‘Additionally, as the companies are so small, there is very limited information at Companies House on these companies as they take advantage of the micro-entity accounts regime which means that they produce negligible financial information. Companies House are consulting on abolishing this regime, and this may well be one reasons why they are doing so.’

Others warned employees to check out agencies before signing up for work as they are liable for tax regardless of their work status.

Dave Chaplin, CEO of contracting authority ContractorCalculator, said: ‘These types of dodgy umbrella schemes have been running for years, yet HMRC has been unable to shut them down.

‘Recently we have seen malpractice by umbrellas and agencies who ask contractors to indemnify the entire supply chain against tax loss before using their umbrella in conjunction with a non-disclosure agreement. They might as well say ‘if we don’t pay the taxman properly, you will owe them the money, and by the way, you can’t tell anyone what happened’. And these firms are supposedly their employers.

‘The simplest option if operating inside IR35 is to go on the company or agency payroll. I would urge anyone who uses an umbrella scheme to make sure you understand how they are supposed to work, and don’t work for one unless you do.’

In December 2020, HMRC warned against the potential dangers of MUC fraud, urging businesses to do their due diligence on their supply chains to ensure agencies were conducting their tax affairs properly.

Both G4S and HR GO Recruitment told the BBC investigation that their payments were in line with HMRC requirements.

Self-Harm (Suicide Attempts) In Immigration Removal Centres Reach All time High in 2015!

YARL'S WOOD IMMIGRATION REMOVAL CENTRE

There were 393 attempts (11% increase on 2014) by Immigration detainees across the detention estate, to self-harm throughout 2015, that is an average of more than one a day. Harmondsworth IRC had the highest number 105 and their were 64 attempts in Yarl’s Wood, The Verne 52, Morton Hall 51.

 Two & half thousand (2,597) detainees were on suicide watch during 2015. 11 of these were children detained in The Cedars. Harmondsworth had the highest number 478, Brook House 364, Colnbrook 345, Yarl's Wood 335.

 Their were two deaths both males in Immigration detention is 2015, one in The Verne in August and one Yarl’s Wood family unit in April.

 Source for all data on ‘Self-Harm’ and those on ‘Self-Harm Watch’ Freedom of Information requests.

 Complete statistics for 2015 Here . . . . 

Statistics for the years 2007 through 2014 can be found here . . . . 

Woman in coma told by Atos to find work!

Shiela Holt from Rochdale

The government and the healthcare company Atos (a.k.a. Crapos), have come under fire after it was revealed that they told a critically ill woman from Rochdale, to get a job even though she was in a coma.

Sheila Holt (47), a bi-polar sufferer who last worked 27-years ago, has been in a coma since last December. But Atos, who are contracted by the Department for Work and Pensions (DWP) to assess fitness for work, continued to send Sheila letters forcing her to look for work. Her family say that Sheila went into a coma after suffering a heart attack at Christmas. They claim that she had a breakdown after she was forced to go on a job seeking course by her benefit bosses.

Following a meeting arranged by Rochdale MP Simon Danczuk, which was attended by Sheila's father Ken Holt, the minister for disabled people, Mike Penning, apologized to the family and admitted that what had happened to Sheila, had been wrong. He also confirmed that Atos were to be replaced.

In February, Mike Penning, told MPs that Atos's work had caused real concern because too many people were appealing against their decisions. More than 600,000 appeals have been lodged against Atos judgments since the work capability assessments began, costing the taxpayer £60 m  a year. Around 40% of the original decisions are overturned on appeal.

Although Atos have been criticized for finding terminally ill and mentally ill people fit for work, in January, Atos boss, Joe Hemming, told a Commons Committee that the company was proud of its work and added:

"We have a real passion for delivering services to the citizen in a way that continues to satisfy."

Labour MP, Paul Flynn, told the Atos boss that he was suffering from a "reality problem."

The companies that are in the running to take over the contract from Atos, currently worth £115m a year, include G4S, Serco, A4e and the Capita Group. Both Serco and G4S, are currently under investigation by the Serious Fraud Office. Atos and G4S, paid no corporation tax last year despite carrying out £2bn of taxpayer-funded contracts.