What is MUC (Mini Umbrella Companies) Fraud

Guest blog from AP Agency Payroll.

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 facilitates a number of crimes. In particular HMRC has noticed an up take 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 taxpayer with a large bill once HMRC catches up with them.

Identifying MUC (Mini Umbrella Companies) 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. See guidance on undertaking robust Due Diligence can be found here.

Considerations that may form part of due diligence could include:

1. 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.
2. 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?
3. 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.
4. Unusually high movement of workers - Are workers moved between different employers who meet the above criteria for being MUCs on a fairly frequent basis?
5. Very short-lived businesses - The individual MUCs have a 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.

Please note this is not an exhaustive list and should be used as only part of the wider due diligence process.

This is a guest blog contribution for the REC website. The views expressed by guest writers reflect the individual's personal opinions.