Fraud Awareness – Mini Umbrella Company (MUC) Fraud
Thursday, November 5, 2020
HMRC have noticed an increase in cases of ‘Mini Umbrella Company (MUC) Fraud’. Understanding and being able to identify MUC Fraud is important to protecting you and your practice.
What is MUC Fraud
MUC Fraud normally involves the division of a temporary workforce, normally paid by an intermediary, into hundreds of small, limited companies. These companies are formed solely for the fraud. The workers are usually unaware of the fraud and often do not fully understand the arrangements they have entered. However, there is not one model for the MUC Fraud and criminals will likely evolve the fraud over time.
The complex system of companies can be used to facility a number of crimes. In particular HMRC has noticed an up tick in this model being used to commit fraud relating to the VAT Flat Rate Scheme and the Employment Allowance. In some versions of MUC Fraud a promoter will convince the taxpayer that the arrangements allow them to receive ‘bonus’ or ‘repayments’ tax free – this is false and ultimately leaves the tax payer with a large bill once HMRC catchup with them.
Identifying MUC Fraud
MUC Fraud is not limited to any one sector. As the MUCs sit low down in the supply chain it may be challenging to spot them. HMRC advises businesses to remain vigilant, especially where the employer of the worker is not the Umbrella Company they may have a contract with.
It is important for businesses to consider the credibility of the supply, payment arrangements and other surrounding circumstances to help safeguard themselves from financial, operational and reputational risks. Guidance on undertaking robust Due Diligence can be found here: The supply chain due diligence principles.
Areas you should explore when completing Customer Due Diligence (CDD) include:
- Unusual company name - Often multiple companies are set up around the same time which have a similar or unusual name. These companies will often be registered at an address which does not seem suitable for the types of business activities.
- Unrelated business activity description - Do the nature of the business activities described in the Companies House entries seem compatible with the services provided by the workers?
- Directors being foreign nationals – Often foreign nationals are appointed as directors when an MUC is formed or they can replace a temporary UK resident director after a short period of time. Usually the directors will have no prior experience in the UK labour supply industry.
- Unusually high movement of workers - Are workers moved between different employers who meet the above criteria for being MUCs on a fairly frequent basis?
- Very short-lived businesses - The individual MUCs have a fairly short lifespan (often less than 18 months) before being allowed to be dissolved by Companies House as a result of their failure to meet their filing obligations. New MUCs will then take their place in the supply chain. You should notice this as you may find that you need to issue a new Key Information Document to workers on a fairly regular basis.