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BBC investigation exposes mini umbrella company fraud

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Philip Fisher analyses an investigation by BBC's File on 4 that has identified potential losses to be Exchequer of billions of pounds.

12th May 2021
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Occasionally, even a journalist-accountant can boast about having his or her finger on the pulse. It is only a fortnight since this column published an article suggesting that fraud was likely to be a boom business.

Any accountant who listened to last night’s File on 4 will have been shocked to discover the extent of what sounds like a carefully orchestrated fraud on HMRC and, by extension, every taxpayer in the country.

The BBC has a long and proud tradition of investigative journalism and this programme presented by Angus Crawford fits perfectly into that genre.

The fraud

The starting point sounds innocent, viewing a personable but pseudonymous young man employed by the NHS as part of its coronavirus testing team.

'John' earns £10 an hour, which sounds unexceptional and unexceptionable. However, after consulting colleagues, he was bemused to discover that every employee at the testing centre had a different employer.

That might sound unusual, given that the supply chain started with the NHS and involves outsourcing via G4S (Turnover $18bn) and HR Go (Turnover £85m).

At face value, you would not imagine that any of these organisations would be seeking to become involved in a rather sordid tax scam.

Once the investigators started delving more deeply, the chain became murkier. Without the knowledge of 'John', he was employed by what has now become known as a mini umbrella company.

In this case, the company was set up weeks before the commencement of his employment with a sole director similar to and interviewed single mother who could not pay her bills and was recruited via Facebook in return for a small amount of much-needed cash.

That might sound devious, but when you discover that she resigned from her multiple directorships to be replaced by individuals recruited in a similar fashion in the Philippines, alarm bells should be ringing.

As far as the investigators have discovered to date, there are at least 50,000 of these companies with Filipino directors who could hardly be described as financially savvy metal in UK tax experts.

However, they are helping to facilitate the avoidance of national insurance contributions and VAT via, respectively, employment allowance and flat rate VAT scheme arrangements that sound suspiciously like scams. Apparently, the amount at stake could run into billions of pounds.

Despite the assistance of ubiquitous QC, Jolyon Maugham from the Good Law Project and former shadow chancellor Anneliese Dodds, the conclusion to a fascinating programme was uncertain.

One representative from HMRC described these arrangements as “fraud”, the producers fought shy of pronouncing this definitively, despite tracking down a series of dodgy-sounding 'promoters' who were reluctant or evasive when asked to justify their planning strategies.

What should happen next?

At a time when the country is struggling with unprecedented amounts of debt, something must be done about arrangements that the man in the street would certainly regard as fraud, even if the law may not.

There are various possibilities. First, there might need to be a change in the law. Secondly, HMRC should be enjoined to recover every penny that it can and finally, it is about time that legislators took steps to ensure that when they introduce arrangements that are so obviously open to fraud, effective anti-avoidance measures are put into place before the passing of legislation rather than many years later when vast amounts of public money have been frittered away.

Over the years, this tax specialist has railed against the government’s constant efforts to denude HMRC of staff, experience and resources. Yet again, this broadcast has highlighted that lack of resource. HMRC has been handed a chance to recover sums that even it must regard as material and apparently taken, at best, a half-hearted approach to the project.

It will be fascinating to see how the story plays out but there could and should be an awful lot of egg on an awful lot of faces from government level downwards.

Replies (12)

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By Justin Bryant
12th May 2021 11:14

I didn't watch this, but it's entirely unsurprising to any professional accountant or anyone who reads the forum comments here re lack of basic CH & HMRC checks (the list is almost endless: dodgy R&D claims, SBP, BBLs etc.) creating a fraudsters' charter i.e. what's new?

The obvious reason is that unlike the private sector, with a few exceptions (dedicated NHS staff, teachers etc.) in the public sector generally there are precious few incentives to do a good job or to get rid of incompetent/under-performing people: https://www.icaew.com/insights/tax-news/2021/may-2021/icaew-urges-hmrc-t...

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By Jane Wanless
12th May 2021 11:32

Why do the words pot and kettle spring to mind?
Should the BBC not be paying some of their regular contributors as employees, and hand over the relevant amount of NI to HMRC?

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By Paul Crowley
12th May 2021 12:18

https://www.accountingweb.co.uk/any-answers/fancy-that-an-ea-fraud-duste...

The mirror had this story 4 years ago
Nobody noticed

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By Roland195
12th May 2021 12:37

While I am certain that an investigation will be launched and action taken, we already know that :-

1. No blame whatsoever will be found with the NHS - heroes to a man, God bless them etc

2. No fault will be found with G4s

3. HR Go may or may not be thrown to the wolves

4. The "promoters" will be roundly condemned but no recourse available as offshore, unidentifiable, Not even sure anything actually illegal occurred

5. Numerous patsies/straw (wo)men actually resident in the UK will have the book thrown at them and hell mend 'em. G4s might actually be paid to incarcerate them.

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By AndyC555
12th May 2021 12:50

HMRC have been reporting on this particular issue for many months. Their December PAYE bulletin, for example, set out things to look out for, mentioned that many thousands of such fraud attempts had been blocked and that arrests had been made in November following investigations (that presumably were on-going for many months before that).

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By indomitable
12th May 2021 13:18

Didn't watch this but thanks, great article. Surely this would be caught by the blanket GAAR legislation if nothing else. Beggars belief that such what appears to be blatant bending of the rules for such large amounts of tax in total would not be vigorously investigated.

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Replying to indomitable:
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By AndyC555
12th May 2021 15:06

I'd start with s3 of the National Insurance Contributions Act 2014.

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By ireallyshouldknowthisbut
12th May 2021 13:47

One very simple solution to this fraud.

Cut out all the middle men, and have the public sector pay public sector staff on a good old fashioned temp payroll.

Of course that means all those with their noses in the trough would get nothing, so it wont happen.

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By dmmarler
12th May 2021 15:35

If the Chancellor combined NI with income tax then there would be less incentive for people to think up these schemes. HMRC would then not have to waste £millions sorting out the ensuing mess. If the NHS has contracted with G4S for staff, then G4S should be responsible for all the activities of the subcontractors it uses to fulfill the contract (particularly overseas). I think the GAAR legislation could be used for this purpose. We shall wait and see ...

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By David Heaton
12th May 2021 15:59

HMRC has known about this for years, and has taken lots of action, but taxpayers' affairs are rightly private unless they are accused of a crime. The story will not be news to the Treasury or HMRC. The big promoters will have taken steps to ensure that everything is done in accordance with the law so that there is no question of fraud. Many contractors don't read what they're signing, they just want to work, so it's doubtful any of those surprised by the name on their payslip had not signed up to it. So the argument becomes about whether it constitutes unacceptable avoidance. The fact that the GAAR Panel hasn't condemned it tells its own story, doesn't it? Or maybe there are, even now, just too many government departments and state organs like the Beeb using contractors supplied through PSC and MUCs?

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Replying to David Heaton:
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By AndyC555
14th May 2021 15:14

Indeed. It's easy to sensationalise such stories and make out HMRC are not doing anything and that it's the journalist that has 'uncovered' what is going on but this is a bit unfair on HMRC.

"It could be billions" says Jolyon Maugham the champion of tax justice and Boxing Day fox bashing but HMRC estimate that the entire cost of all NIC allowance is £2.5bn a year so that's unlikely.

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By hfiddes
13th May 2021 10:34

BBC Radio 4's File on 4 is always worth a listen imho - best accompanied with some alcohol to fortify oneself as you learn what other people are capable of doing to others/the environment etc :(

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