Warning Signs to Look For With Mini Umbrella Companies

Mini Umbrella Companies have been in the news this year, and in this post, we take a closer look at what to look out for when using one of these schemes within your supply chain. It is really important for all businesses to do regular due diligence checks to identify the risks of Mini Umbrella practice. HMRC recommends all businesses do so to remain safe. Keep reading to learn more about the warning signs to remember when it comes to Mini Umbrella Companies. 

1. Who Pays the Workers?

The first warning sign to look out for is; who pays the worker? Usually, with this type of payroll model, payments are made to workers via randomly named companies, and these regularly change, with no transparency of pay deductions provided. 

They also require the Recruitment Agency to often submit multiple Key Information Documents for the same worker. Likewise, there is little or no employers’ national insurance paid on the workers’ pay. This is seen by HMRC as tax fraud. Lastly, there can be no evidence of taxes paid by the agency or end client as there are several suppliers. 

2. Random Company Names

The second warning sign of Mini Umbrella Companies is unusual company names. Workers are normally paid and contracted through different limited companies with strange names. This is because Mini Umbrellas need payroll companies to have limited payroll payments that allow the use of employers’ NI allowance and a bit more above this. 

3. Trading Address, Location and Business Activities

Thirdly, lots of Mini Umbrella Companies are run from serviced offices, bulk mailbox offices or even offshore. The business type registered at Companies House commonly mismatches with the actual trading group that the workers belong to. 

4. Foreign Business Directors

Similarly, it is a frequent occurrence that many directors or shareholders are non-UK nationals, non resident and non-tax residents. The workers are unable to interact with them, as some cannot speak English. This makes them a non-compliant payroll solution.

5. Flat Rate VAT

Moreover, a high proportion of Mini Umbrella Companies use flat rate VAT accounting to gain additional income without needing to have proper accounting records and systems. Flat rate schemes based on business type effectively increase the Mini Umbrella access to “created” VAT savings. 

As a result, this is why lots of them have the incorrect business classification at Companies House - it gives them bigger savings. This is a type of VAT fraud and it is an indicator of a noncompliant payroll solution.

6. Abuse of Employers’ Allowance

A final warning sign is that Mini Umbrella Schemes are structured to provide several Employment Allowance opportunities through the use of multiple Limited companies.

Searching for a Compliant Payroll Provider in the UK?

As we touched on at the start of this post, it’s important to do due diligence as the costs of not doing so are very high. If you would like to protect your business, then it’s vital that you choose a compliant payroll solution such as Clockwork Contracting. 

We are a trusted payroll provider, offering compliant and transparent services to end clients, agencies and contractors. If you’d like to get in touch with us, then please contact us today on 0203 0042 262 or email us at [email protected] and we’ll get back to you as quickly as possible.