No Oscar for HMRC mini-umbrella company film, but at least it’s a warning, of sorts — experts

A new film by the taxman goes as far as saying suspected MUC fraud is cause to reconsider contract labour options. Other than that bit of drama, ‘Spielberg can rest easy.’

A new HMRC film on Mini-Umbrella Companies won’t win any Oscars, but it’s a box office hit if raising awareness of fraud is the only aim.

Yet despite this consensus of experts, who yesterday reviewed the video for ITContracting.com, it doesn’t mean the film isn’t dramatic.

For its climax, HMRC ends the film by saying merely a suspicion of MUC fraud is cause to “reconsider your options for using temporary labour”.

Advisers to IT contractors who use umbrella companies say detail, in place of drama, would probably have been better.

‘Sceptical’

Seb Sauca of SafeRec says he welcomes the film, uploaded to YouTube by HMRC on August 22.

Yet he says he already knows of “several…sceptical” viewers.

Sauca told ITContracting.com: “[The HMRC MUC fraud video lasting 2 minutes and 51 seconds] may not fully satisfy everyone’s expectations.

“It might lack comprehensive detail too. And I agree on both counts. But it does send a crucial message…[to] agencies and contractors.”

‘Insufficient level of detail’

Crawford Temple of Professional Passport says the HMRC film “What is mini-umbrella company fraud?” does skimp on the red flags.

“The level of detail provided may still be insufficient for some to identify these schemes,” Mr Temple told ITContracting.com.

“MUC operators are adept at evading detection, often rebranding under new names to escape HMRC’s detection.”

‘Muddying the waters’

Lucy Smith of Clarity Umbrella says HMRC has made the key task of detection by taxpayers ‘muddy,’ by lumping avoidance in with fraud.

“Putting aside that Spielberg can probably rest easy, this is an interesting video.

“But it risks muddying the waters,” Smith told ITContracting.com.

“MUCs were designed to take advantage of the Employment Allowance and VAT Flat Rate Scheme. And the video correctly informs us of that.

“But it also casts them as tax avoiders by saying they leave PAYE bills unpaid. Maybe some do, but strictly-speaking that’s not MUCs.”

In the film, HMRC says the “result of” MUCs is unpaid VAT, “income tax” and National Insurance.

‘Mini-Umbrella Company warning signs to look out for’

HMRC says the YouTube video “raises awareness of the risks associated with mini umbrella companies,” and the “warning signs to look out for.”

As to those signs, HMRC says in the film that “the registered business address may not seem suitable for their types of business activity.”

However, taxpayers would actually need to visit Companies House’s website to see the registered business address in use.

‘Employees may be moved frequently between different MUCs’

While using Companies House is not explicitly recommended in the HMRC video as a way to check the address, the next tip plugs the gap.

“The business activities listed on Companies House often don’t match the services provided by the workers,” HMRC says, alluding to the need to use Companies House’s website as part of ‘due diligence’ checks.

Adding a further ‘Sign of MUCs,’ the Revenue then warns: “Employees may be moved frequently between different MUCs.”

‘HMRC’s Mini-Umbrella Company YouTube video sheds light on the dangers posed’

“The value of these [sorts of YouTube] videos [by HMRC] lies in their potential to educate,” says Mr Sauca, SafeRec’s managing director.

“By shedding light on the dangers posed by offshore outfits and MUC schemes, HMRC is helping to guide agencies and workers towards compliance”.

Yet if compliance is HMRC’s objective, making a video shouldn’t be more important than making use of existing data, suggests Mr Temple.

‘Suspicious providers’

Professional Passport’s CEO, he explained: “The RTI reporting and Intermediary Reporting systems… provide HMRC with valuable data on market dynamics and supply chains.

“By cross-referencing this information, HMRC should be able to identify suspicious providers and shut them down swiftly.

“To truly crack down on MUCs and similar schemes, HMRC needs increased resources and expanded enforcement capabilities.

“This would enable them to leverage existing tools more effectively, and finally put an end to these long-standing issues in the sector.”

‘MUCs seem like a thing from the past’

With MUCs already evolving, apparently in one instance into a pyramid-type scheme, Smith says the video, like HMRC’s latest MUC guidance, is a bit late.

“I get that HMRC is trying to highlight the potential issues to contractors with companies portraying themselves as umbrella companies, and is explaining the nuances around MUCs.

“That’s great. But the Revenue does seem to be doing this a little too late, as the latest schemes are already on the scene and MUCs seem like a thing from the past.”

‘HMRC better get filming the sequel’

Clarity’s managing director, Smith continued last night: “There’s a MUC-inspired pyramid-type scheme for example where, say, five businesses at the bottom rung obtain the Employment Allowance from HMRC, but then get sold on individually to the next rung of five businesses which also claim the EA. Then, one business buys the entire second tier, swallowing 10 companies’ worth of NI tax credits, invariably running into the many, many thousands of pounds.

“With how complicated that could be to show on a video, and with how long it seems to take the tax office to warn on these issues, HMRC better get filming the sequel. And without delay.”