We are all more than aware of the term “umbrella companies”. These are businesses that employ only temporary staff members such as contractors on behalf of employment agencies or large organisations. It is the umbrella companies that operate the payroll and make their money by taking a percentage of the fees earned by the individual. However, it has come to light that there have been many scams regarding these companies.

Why Be Aware Of Mini Umbrella Companies?

Umbrella companies should always provide each worker with an employment contract and payslips, along with a breakdown of the worker’s assignment rate received and a list of their costs, including their employer’s national insurance contributions (NIC). This NIC should not be deducted from the worker’s contract rate.

However, it has become known that some umbrella companies bend the law to take advantage of the tax breaks created for small companies, hoping that they can increase profits. To do this, they often form multiple ‘mini umbrella’ companies (MUCs), and each of these employs only one or two people. From here, they then claim the employment allowance, which is worth up to £4,000 per year and, in some cases, also use the VAT at rate scheme to save some VAT.

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Tips For Handling MUCs Scams

If you are a contractor that has been caught up in a mini umbrella scam like the above examples, you must contact your ultimate customer immediately, warning them of the potential fraud in their supply chain.

On the other hand, if you are a business that uses temporary workers, it is important to ensure that due diligence checks are regularly carried out on your supply chain, and you are clear on who pays those workers and how. If your workers have been promised any of the following, then this should ring alarm bells:

  • Non-taxable pay;
  • Higher take-home pay;
  • Or have been asked to sign a loan or annuity agreement.