Don’t be tricked by mini umbrella companies, treat yourself and go with Parasol

It’s officially Halloween month! From wearing a scary costume to give someone a fright to playing a spooky prank on a colleague, we’re all in for some surprises. While it’s all fun and games when it comes to being tricked, it must be done in good faith. Somewhere you most definitely shouldn’t be feeling duped is when it comes to selecting and working with an umbrella company. With mini umbrella companies on the rise, we wanted to take the time to warn you about these fraudulent companies who operate illegally.

This blog will walk you through what mini umbrellas are, how they work, and ways in which you can spot them. That way you can rest assured you’re working through a compliant business. It’s important to protect yourself and save the nasty tricks for Halloween, where they belong!

Mini Umbrella Fraud

Mini umbrella companies, often referred to as MUCs, are a form of tax evasion. How do they operate? They’re large companies that employ high volumes of contractors and then split their workers into several smaller companies, aka mini umbrellas. By dividing their workforce in this way, they’re able to exploit tax breaks and National Insurance thresholds intended for small businesses with the goal of reducing the amount of money paid to HMRC. Essentially, by splitting their contractors into lots of small umbrella companies, they’re able to disguise their activities and actively avoid paying the correct amount of Income Tax, VAT and NI contributions.

Not only does this mean HMRC are owed money, but contractors themselves miss out on basic employment rights such as holiday pay and pensions.

How can you spot a mini umbrella?

Trying to spot a mini umbrella company can feel a little like trying to spot a ghost – you’re unsure of the facts, you begin to doubt yourself, then it disappears before you have the chance to verify. After all, MUCs are famously hard to pin down because they operate based off their ability to mask themselves from HMRC. Much like ghosts, they’re excellent at pulling a disappearing act and restarting with a brand-new name.

To help you verify who to trust and who to avoid, we’ve gathered some top tips you should be mindful of before signing up to an umbrella:

Fees that are too good to be true

Mini umbrellas offer services at much lower fees in comparison to compliant umbrella companies. Such enticing offers might just be how they lure you in. Before you’re caught up in the joys of having more take-home pay, do your research to see if fees are lower for legitimate reasons. For example, perhaps the fees are billed as lower because there’s hidden fees and add-ons within the package.

Lack of transparency

Being vague and ambiguous when it comes to financial information on documents like fee breakdowns, payslips and payment structures is a telltale sign. Compliant umbrella companies will never confuse you with financial details, everything should be clear and transparent from the get-go.

Zero employee benefits

Mini umbrellas won’t offer things like holiday pay, pension contributions, sick pay, etc.

A strange company name

If HMRC get wind of a mini umbrella, they deregister it and add it to a list warning people off the company. This means that as the name of the company is likely to change frequently to avoid being uncovered, it may be unusual or not accurately describe what the business does. The name of the company on payslips could also differ from worker to worker within the same employment agency.

Foreign national listed as director

This is probably because the company was set up using a temporary UK resident director before being replaced. These foreign nationals usually won’t have any previous or relevant experience in the UK industry the company is listed under.

High number of workers & high turnover

If a relatively small company has an unusually high volume of contractors on their books, it could be an indication of being a MUC. It’s also suspicious if workers are frequently moved between companies as this is an indicator of mini umbrellas being in play.

They disappear after a short time

They are short lived and only operate for roughly 18 months before being dissolved by Companies House for not meeting filing obligations.

Consequences of being involved with mini umbrellas

Being involved with a mini umbrella company may seem like it has its positives for you because, at the end of the day, you’re able to increase your take-home pay. You might even tell yourself it’s fine if you’re not actively involved in the fraud as the company will take the hit if anything happens, not you.

This is not the case at all.

The increased pay is only temporary. When HMRC finds out about the illegal operations, you’ll be sent a large bill of underpaid taxes to rectify and will probably even end up owing more in the long run if penalties are involved. That’s definitely not the trick or treat surprise you want this October... or any time for that matter! What’s more, growing evidence suggests mini umbrella companies never have your back. They’ll leave you in the dust to deal with the fallout and offer no support with your HMRC bills. It just isn’t worth the hassle of getting involved.

If you suspect you’re involved with a mini umbrella company, don’t panic. As we’ve established, they’re hard to spot and are skilled at being deceptive. The best thing we can advise you to do is to leave the mini umbrella company as soon as possible. The next priority is to notify HMRC so they can take necessary legal action.

Stay protected

HMRC is taking active steps to ensure that MCU fraud is uncovered. As well as using their powers to identify and deregister mini umbrellas, they’re also working hard to increase general awareness. You might find it useful to watch this video which further explains mini umbrella fraud.

If you take one thing away from this article it should be this: you’re never safe with a mini umbrella company. Don’t let MUCs pull the cobwebs over your eyes; do your research to ensure you’re working with a compliant umbrella company.

Our offering

We promise to pay you on time, give you the employment rights and benefits you’re entitled to, and be on hand for any support or guidance you need along the way. Most importantly, we pride ourselves on providing a first-class umbrella service for our contractors that is grounded in financial clarity, security and compliance.

So, what do you say? Save the tricks for Halloween and sign up with Parasol for the treat you deserve.