HMRC has issued a warning that companies need to be wary of possible Mini Umbrella Company (MUC) fraud in their supply chains, particularly as there is an increased reliance on temporary labour in the UK.

The Express reports that by engaging with MUCs, contractors can boost their take-home pay, but with some consequences. The extra in their pay packet comes from the non-payment of taxes, including PAYE, NICs and VAT to HMRC. Anyone, knowingly or not, using these types of schemes will be liable for any underpayments of tax and NIC, as well as substantial fines.

What is Mini Umbrella Company fraud?

The MUC model is an employment intermediary model which primarily abuses two government incentives aimed at small businesses – the VAT flat rate scheme and the Employment Allowance. It can also result in the non-payment of other taxes such as VAT, PAYE and NICs.

MUCs work by dividing up a temporary workforce into hundreds of small limited companies, which are established solely to commit fraud. It has become a common type of fraud that can occur in almost any sector where temporary labour is used, and where there are recruitment agencies or umbrella companies in the supply chain.

While there is no standard model of MUC fraud, and scheme promotors will constantly change the arrangements to hide their activities, there are some tell-tale signs to keep an eye out for:

• Unusual company name: multiple companies will be set up around the same time which has a similar or unusual name. The registered address often won’t seem suitable for the types of business provided by the workers.
• Unrelated business activity description: where the business activities listed on Companies House don’t relate to the services provided by the workers.
• Directors being foreign nationals: Often foreign nationals are listed as directors who have no prior experience in the UK labour supply industry.
• Unusually high movement of workers between companies: workers engaged by MUCs tend to be moved between different employing companies regularly.
• Short-lived businesses: MUCs have a short lifespan and are often around for 18 months or less before being dissolved by Companies House for failing to meet their filing obligations.

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