A guide from Professional Passport to help stop the MUCs from spreading, in six easy to apply steps.
In the 2024-25 tax landscape, where Mini-Umbrella Company fraud is well-documented but likely to keep evolving into 2025-26, six steps contractors can take to close down the MUC risk are a must, writes Crawford Temple, CEO of the largest independent assessor of payment intermediary compliance Professional Passport.
Employment Rights Bill oversight: Vetting umbrellas just got more critical
Before I identify the six, here and exclusively for ITContracting.Com, it’s worth noting that the critical importance of thoroughly vetting any provider claiming to be an umbrella firm just got; well, even more critical.
That’s because Labour’s large Employment Rights Bill, published on Thursday October 10th, does not contain a single provision to assist in the overdue need to regulate the umbrella market.
Your next ‘umbrella’ may be a ‘Have I got a good idea for you’ scheme
Understanding what’s truly being offered is therefore going to remain key for contractors in the foreseeable future to distinguishing legitimate umbrella companies from potentially risky, ‘Have I got a good idea for you’ schemes.
To inform the six steps I recommend contractors take to close down the threat of a MUC, it’s crucial to understand that the term “umbrella” lacks a legal definition. It’s often used generically to describe various service offerings in the contractor sector.
Our organisation is playing its part to stamp out the ‘all things to all people’ meaning of ‘umbrella company,’ by having strict criteria for what constitutes a genuine umbrella company.
Margin is the only umbrella company take-home pay variable
In addition, it should be further remembered — all legitimate UK umbrella companies which contractors come across must, by law, operate under the same tax rules.
So the return for the worker — the contractor’s take-home pay — should be almost identical, with only slight variations due to margin charges varying from one umbrella to the next.
What does a genuine umbrella company look like?
As many ITContracting.com readers know, a true, bonafide umbrella company is a limited company that formally employs its workers, whereby PAYE tax is applied (by the umbrella) to all income as any standard employer would.
Unfortunately, though, non-compliant service offerings pose significant risks throughout the supply chain.
And one prevalent variation is the Mini Umbrella Company (MUC).
What does a Mini-Umbrella Company look like?
While HMRC has produced informational content to highlight these abusive schemes, they remain widespread and continue to pose risks to unsuspecting workers.
One example of HMRC’s content to warn against MUCs is this YouTube video. The video hit the headlines on ITContracting.com last month.
But if you tune in, please don’t be fooled or distracted by the upbeat introductory music! Recognising what is and isn’t a genuine umbrella company is crucial to avoid being taken in by a MUC.
Six steps to take to help stop Mini-Umbrella Companies from spreading
We therefore recommend that contractors facing this complex landscape, to close down their risk of being engaged by a Mini-Umbrella Company, take the following six steps:
1. RESEARCH: Always thoroughly research the umbrella company before engaging its services.
2. TAKE-HOME: Be wary of promises from the provider of unusually high take-home pay or “tax savings.”
3. INSTINCT: If an arrangement seems too good to be true, it likely is.
4. PAPERWORK: Once engaged, regularly review payslips and employment contracts to spot any untoward or unexplained changes.
5. ASK: If discrepancies do emerge, or if something in your payslip or contract doesn’t seem right, don’t hesitate to ask questions of the provider.
6. ACT: Seek advice from reputable compliance experts if unsure about an arrangement and, if your fears are confirmed, take action.
First and foremost, that action should be to extricate yourself from the arrangement or provider. The second action should be reporting the provider, in the hope other contractors can avoid it (more on that later – see ‘Blow the whistle…’ section).
A tell-tale sign you’re in a Mini-Umbrella Company…
At first, it may appear tricky to cease being part of the provider because, in the case of MUCs, the worker can find that their employer changes regularly without apparent reason.
You can spot this unenviable case of the employer name shifting or altering (which is a signpost that your provider is a MUC) by keeping an eye out for the issuing of new contracts. Similarly, actual changes in the employer name or to the PAYE reference on payslips are red flags.
Contractor recruitment agencies vs. MUCs
But it’s not just contractors who should take steps to close down the MUC threat. Agencies, too, have a part to play in keeping workers safe and must conduct their own ‘due diligence’.
One easy check for agencies to make is to verify that the bank account they pay into belongs to the same company employing the worker. Some schemes attempt to obscure their operations by using a centralised bank account to distribute funds across multiple worker-engaging organisations. This practice isn’t unique to MUCs and can indicate various Disguised Remuneration arrangements.
Lies, excuses, and bogus paperwork
Promoters and operators of these Disguised Remuneration schemes often resort to deceit, providing fraudulent documentation or weak justifications for changes. The upshot? The entire supply chain; that’s hirers, agencies, umbrella firms and workers must work together to help identify such schemes.
Intelligence shared can help to identify such schemes and the appropriate action taken.
Blow the whistle on an umbrella company suspected of being rogue, or a MUC
And here’s how you can blow the whistle!
Our payment intermediary compliance assessment organisation welcomes evidence of any wrongdoing. Why? Well, throughout our 17-year history not a single agency or end-client with an active accreditation has faced debt transfer issues with HMRC, and we’re keen to keep it that way!
Collaborating and providing key information offers a robust defence when it comes to supply chain compliance. To report any concern that you might have as a contractor or prospective user of a provider, contact us and use our confidential facility here.
Final thought
The umbrella company sector plays a vital role in supporting the UK’s flexible workforce. However, the presence of non-compliant schemes such as MUCs (Mini-Umbrella Companies) threatens to undermine the industry’s reputation and put workers at risk. By staying vigilant, collaborating, and taking the six steps outlined here, contractors can protect themselves and contribute to a more transparent, compliant labour market.
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