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Mini-umbrella companies and the employment allowance – tax avoidance or payroll fraud?
Justine Riccomini MSc FFTA AIPA Chartered MCIPD ChFCIPP, head of taxation, the Institute of Chartered Accountants of Scotland (ICAS), discusses
the risks involved with mini-umbrella companies which become involved in value added tax (VAT) flat rate scheme and employment allowance claims
I n the summer of 2023, news began to regularly appear in the headlines involving the use of mini-umbrella companies to perpetuate fraud involving payrolls and making multiple employment allowance claims. This worrying development was examined by Tax Policy Associates 1 . Their examinations revealed that one example of this involved a large business which was given an opinion by a King’s Counsel (KC) lawyer on using mini-umbrellas. Under normal rules, the business was too large to qualify for employment allowance or the VAT flat rate scheme. So, that business then split the
company up into thousands of UK mini- umbrella companies, in spite of the HM Revenue and Customs (HMRC) Spotlight 2 24 which had been issued in 2015, the year before this particular scheme example launched. Those companies then advertised on Facebook and other social media platforms to recruit people from overseas (in this case, the Philippines) to become shareholder directors and paid them a nominal fee to put their name on paper. Each of the mini-umbrellas then became eligible to operate the VAT flat rate scheme and claim the employment allowance. Note that the flat rate VAT rules were changed in 2017 3 , which made the
| Professional in Payroll, Pensions and Reward | February 2024 | Issue 97 56
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