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How to spot mini umbrella company fraud


With the flurry of media reports relating to mini umbrella companies (MUCs), Lora Murphy advises companies on how to spot the red flags in their supply chain.

2nd Jun 2021
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There are a variety of different models and arrangements relating to MUC fraud, which are continually evolving and changing, but the activity that came under public scrutiny this month related specifically to the practice of abusing the employment allowance.

The employment allowance is offered to certain eligible organisations and allows them to offset a figure of £4,000 (2021-22) against their annual national insurance (NI) liability. It has been highlighted that certain recruitment agencies exploit the employment allowance by employing temporary workers through a variety of MUCs. Each MUC only hires very few workers and so each single company is entitled to the NI relief.

As a result, every business which places or uses temporary labour has been advised to be vigilant to fraudulent activity carried out by MUCs within their supply chain.

A fraudulent supply chain could ultimately result in financial and reputational damage to a company but will also mean that their workers do not receive the pay that they are entitled to. There are additional consequences for HMRC as fraudulent activity carried out by MUCs results in lower PAYE, NI and VAT payments.

Be vigilant

There are several warning signs to watch out for in relation to MUCs. It can sometimes be difficult to spot these warning signs as MUCs are often low down in the supply chain. This is why those who engage with MUCs are encouraged to carry out frequent due diligence checks to ensure that they can spot these red flags and act accordingly.

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Replies (3)

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By Paul Crowley
02nd Jun 2021 16:19

When HM Gov awards contracts, should HM Gov have a system of due diligence all the way down to the worker?
Has HM Gov suffered reputational damage?
What exactly is fraudulent about using multiple suppliers?
This is a very old story.
MUCs have been around for years, is the current strain more virulent?

Thanks (1)
Replying to Paul Crowley:
By SteveHa
03rd Jun 2021 08:36

Paul Crowley wrote:
What exactly is fraudulent about using multiple suppliers?

That was my immediate thought.

Thanks (0)
By Hugo Fair
02nd Jun 2021 19:54

This is just a (very slight) re-write of the Press Release from HMRC last month - as already reported on copiously on this site!
And, as commented at the time, it is Govt depts (including HMRC) who should be heeding the call to recognise/avoid doing business with those who sub-contract to MUCs.
It's well within the remit and potential control of ministries to write contracts with T&Cs that can massively penalise any contractor to whom they give business ... so they should clean up their own stables and stop publishing PR puffery that is only designed to obscure their incompetence.

Thanks (2)