According to a new investigation from the BBC’s File on 4 programme, more than 48,000 “mini umbrella companies” have been formed over the past five years in an effort to reduce the tax and National Insurance Contributions (NICs) paid by recruitment agencies.
The report found that over 40,000 people from the Philippines have been engaged to act as fronts for British companies. These companies would then employ subcontractors to work for firms including G4S. Some staff at G4S-managed COVID-19 testing centres, for example, were found to have been engaged by these mini umbrella companies.
Such companies were subsequently each able to claim an annual £4,000 discount on NICs via the government’s Employment Allowance, which aims to incentivise companies to engage more workers. The report claims that this has cumulatively cost the UK “hundreds of millions” in unpaid taxes.
According to the BBC’s report, these mini umbrella companies would typically be incorporated in the UK with a British director (who would often be recruited via Facebook). These directors would then resign and be replaced by a Filipino director.
HMRC has warned about the threat posed by fraudulent mini umbrella companies and urged self-employed workers and businesses to be wary. Common tell-tale signs of fraudulent schemes include companies that have only recently been established, directors who are foreign nationals and high employee turnover.
The Treasury has said it is tackling these companies through both criminal and civil powers and that it has recently deregistered over 22,000 such companies. HMRC says it has made several arrests and begun proceedings to recover unpaid tax from companies that had fraudulent activity within their supply chain.
Author: Steven English