UK: Supply Chain Fraud Found in Mini Umbrella Companies

HM Revenue and Customs (HMRC) is cracking down on mini umbrella companies created to perpetuate fraud – recently shutting down over 22,000 of these businesses. More than 48,000 mini umbrella companies emerged over the past several years to exploit the tax allowance meant to encourage companies to hire more workers.

This recent activity involves companies engaging contractors through umbrella companies, so they can receive the employment tax allowance. Mini umbrella warning signs can include unusual company names, unrelated activities, short-lived businesses and unexplained movement of workers between companies. Organizations may be liable for any unpaid taxes due to fraud in their supply chains.

Takeaway: HMRC has taken action to deny the right to recover input tax in cases where a business in the supply chain knew, or should have known, that there was fraud. Therefore, companies that use contract labor should ensure that they have processes in place to minimize the risks posed by mini umbrella companies.

It is difficult to guarantee that 100% of the supply chain is free of mini umbrellas. AGS works with its compliance and legal teams to investigate if a situation seems suspicious. Suppliers are asked to use Freelancer & Contractor Services Association (FCSA) accredited umbrella companies. Organizations are also encouraged to seek indemnification for their company in their contracts and ask suppliers to ensure they are completing strict due diligence as advised by the government.

UK: Supply Chain Fraud Found in Mini Umbrella Companies

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