Mini umbrella company fraud
Find out about mini umbrella company fraud, including checks you should complete and how to report potential fraud.
If your business places or uses temporary workers, you should be aware of the potential dangers of mini umbrella company fraud in the supply chain.
A fraudulent supply chain can lead to reputational and financial damage to your business and your workers.
As a user or provider of temporary workers, it’s your responsibility to be clear about:
- who pays the workers
- how they are paid
This is the only way to protect your business from becoming involved in mini umbrella company fraud.
If you’re an agency worker or contractor, and work through an umbrella company, you can:
- read more about how and what you’ll be paid
- use our tool to work out pay from an umbrella company
What mini umbrella company fraud is
There is no standard model for mini umbrella company fraud. It’s always changing, as organised criminals try to hide their fraudulent activities.
These criminals create multiple limited companies to enable fraud. Only a few temporary workers are employed by each one.
A promoter business organises the structure of the mini umbrella companies. This is sometimes known as an outsourcing business. It may have other linked businesses to support the operation.
The fraud is primarily based around the abuse of 2 government incentives aimed at small businesses:
- the VAT Flat Rate Scheme
- Employment Allowance
The creation of the mini umbrella companies and the complex layers of businesses in the supply chain help enable the fraud.
This was confirmed by the First Tier Tax tribunal decision, published on the Courts and Tribunals Judiciary website, on 27 March 2024.
The impact of mini umbrella company fraud
Mini umbrella company fraud creates a disadvantage for employment agencies and businesses who follow the rules. It presents an organised crime threat to the UK Exchequer.
It significantly reduces tax payments to HMRC, including:
- PAYE
- National Insurance
- VAT
The fraud can result in the loss of some of a worker’s employment rights.
Warning signs
Mini umbrella companies are low in the supply chain. This means it may be challenging to spot warning signs of fraud. You must be vigilant, especially where the employer of a worker is not the company you have a contract with.
These are some of the signs to look out for, although they should not be taken in isolation. Most mini umbrella companies will display most, if not all, of the signs in the following sections.
Unusual company names
Multiple companies are often set up around the same time and given a similar or unusual name. The registered address may not seem suitable for their types of business activities.
Unrelated business activity
The business activities listed on Companies House entries will often not relate to the services provided by the workers.
Foreign national directors
Foreign nationals with no previous experience in the UK labour supply industry are often listed as directors. They may replace a temporary UK resident director after a short time.
Movement of workers
Employees may be regularly moved between different mini umbrella companies. They are often:
- unsure who their employer is
- not aware of any fraud
Short-lived businesses (also known as transient businesses)
These mini umbrella companies have a relatively short lifespan. New mini umbrella companies will then take their place in the supply chain.
Because of this, you may find that you need to issue a new key information document to workers on a regular basis.
What HMRC is doing about mini umbrella fraud
HMRC’s Fraud Investigation Service is using its civil and criminal powers to challenge those involved in mini umbrella company fraud.
HMRC has deregistered tens of thousands of mini umbrella companies who we believe were involved in fraud.
Where we’ve established that a business in the supply chain knew, or should have known, that there was fraud, we’ve taken steps to:
- deny other businesses in the same labour supply chain the right to recover VAT input tax
- transfer liability for any associated penalties to the company officer
In 2017, the government introduced the ‘trader of limited cost’ legislation, after seeing a surge in the number of mini umbrella companies. This helped HMRC to:
- remove several businesses setting up mini umbrella companies
- reduce the number of mini umbrella companies
HMRC works with trade bodies and other government departments to raise awareness of mini umbrella company fraud.
Checks you can carry out to protect your supply chain
If your business is using or providing temporary labour, it’s your responsibility to:
- undertake necessary and proportionate due diligence checks
- be clear who pays your workers and how they are paid
- check the credibility of the supply chain
These checks will help safeguard your business from financial, operational and reputational risks.
Information from sources like the Companies House register might help you spot warning signs when you complete your quarterly employment intermediary reports.
Read more about supply chain due diligence.
Report potential fraud or tax evasion
Contact HMRC if you:
- have concerns about a supplier, hirer of labour or associated activities
- want to report someone you think may be evading tax
More information
Read about:
Watch a video that explains what mini umbrella company fraud is.
Updates to this page
Published 10 May 2021Last updated 3 December 2024 + show all updates
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A link to the tool 'work out pay from an umbrella company' has been added.
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A link to a HMRC YouTube video that explains what mini umbrella company fraud is has been added in the 'Get more information' section.
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Information updated about what mini umbrella company fraud is to include a link to a First Tier Tax tribunal decision.
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Guidance about warning signs has been updated.
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Information about what HMRC is doing about mini umbrella fraud has been updated.
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First published.