Written by: Keith Tully
The government and HMRC have issued a warning to businesses to be on the lookout for operators within their supply chains who may be committing fraud via the use of mini umbrella companies.
Recent reports in newspapers and from the BBC have highlighted the apparent prevalence of small companies being involved in hiring and recruitment processes while operating on the basis of opaque structures designed at least in part to avoid taxation.
According to a BBC report on the subject, close to 50,000 mini umbrella companies have been created in the past five years to reduce the National Insurance contributions for which recruiters are liable.
Meanwhile, investigators at the Guardian have reported that a significant number of people employed within the NHS test-and-trace system are being paid through a network of small companies that could potentially be involved in defrauding the government.
Statements from the government on the subject have confirmed its concerns that mini umbrella companies are now being used frequently to avoid PAYE, National Insurance and VAT.
Those statements explain that there is no single approach to using mini umbrella companies as a means of committing tax fraud because the associated arrangements are believed to be “constantly evolving as organised criminals try to hide their fraudulent activities from HMRC”.
“These criminals create multiple limited companies and only a small number of temporary workers are employed by each one. These are set up to enable fraud,” HMRC has explained.
In an effort to reduce the extent to which tax fraud is being committed using umbrella companies, the government has emphasised to businesses who recruit temporary staff via third parties that they should take responsibility for understanding fundamentally how anyone who works for them is being paid.
“As an end user or provider of temporary labour it is your responsibility to be clear about who pays the workers and how they are paid,” the government has said in its recently published guidance.
The guidance goes on to note that the offending companies could be “low down in the supply chain” and, therefore, may be “challenging to spot”.
“You must be vigilant, especially where the employer of the worker is not the umbrella company you have a contract with,” businesses are being warned.
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