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The government have tasked HMRC to crack down on the structures that companies have put in place, in particular on the temporary labour market, to put the burden on companies themselves to ensure that the correct tax and entitlements are paid to their workers.
The issue that HMRC are having indicated in the following guideline, https://www.gov.uk/guidance/mini-umbrella-company-fraud, include that companies need to be aware of situations where multiple companies are created to facilitate fraud.
However the use of this mechanism to pay workers through an “umbrella company” is strictly speaking not illegal and if run properly offers contactors access to a continuous stream of labour while protecting business from the expense of hiring staff.
However the system can be abused, with mini umbrella companies used to try and benefit from the VAT flat rate scheme, which result in the non-payment of PAYE, national insurance contributions (NIC) and other taxes.
The system works both ways but there is a clear emphasis by HMRC that businesses need to be more aware about how their supply chain operates, including disclosures from companies who deal with employment agencies requiring them to disclose any use of mini umbrella companies.
Many umbrella companies are responsible operators that comply fully with all relevant tax and employment laws, but companies need to be aware of the risks and potential liabilities passing up the supply chain as a result of the existence of fraudulent mini-umbrella companies.
Our team have noticed an increase in investigations and proceedings in the civil and criminal courts in regards to mini umbrella companies.
If you require specialist advice in this area please contact:
Criminal defence and fraud director Rubin Italia on 020 3114 1129 or email rubini@duncanlewis.com.
Solicitor Nitsan Green on 020 3114 1240 or email nitsang@duncanlewis.com.