Tax dodging, pay snaffling, fraudulent firms in ban now call
A scam both simple and endlessly complex, Unite is demanding swift government action to end ‘umbrella companies’
“I didn't recognise the company at all – I didn't know who they were. Nobody on the site was being paid by the same company as I was. I think we all knew something untoward, sketchy was happening.”
*John
Unite has reiterated its call to ban all umbrella companies after new revelations that so-called ‘mini-umbrella companies’ are being used in NHS Test and Trace supply chains.
While mini-umbrella companies have existed for many years, their popularity has grown astronomically, to 48,000 in the last five years alone as recruitment agencies seek to slash their tax and national insurance bills.
Although mini-umbrella companies are not illegal, they are often used to fraudulently claim a tax break known as employment allowance. Small companies with very few employees can legitimately claim the tax break, worth up to £4,000 a year in discounts on national insurance contributions. Employment allowance was designed to encourage small businesses to hire more people.
But many shady recruitment agencies now use them to dodge paying national insurance on workers altogether through mini-umbrella fraud.
It’s a scam that’s both simple and endlessly complex. First, a fraudulent mini-umbrella company is set up by recruiting a ‘director’ from the UK – they are often just ordinary people who are promised cash in exchange for agreeing to front various companies on paper for a short period of time. These directors then resign and the companies are then appointed a director from the Philippines.
Again, these Filipino directors are just ordinary people recruited on Facebook or through word of mouth in some of the poorest regions of the country. All they need is an internet connection, a mobile phone, an email address and an ID document. In exchange for money, these ‘directors’ sign British companies’ documents through an online portal.
The BBC reported that tens of thousands of Filipinos are recruited each year to take part in this mini-umbrella company scam. It is understood that foreign directors are appointed because it is more difficult for HMRC to prosecute fraud in different jurisdictions.
Recruitment agencies then use these various small ‘companies’ to pay agency workers in the UK. Workers who are being paid through this fraud will often notice that their ‘employer,’ as listed in their payslip, will have an unusual name, and this employer can change from month to month. Paid late or incorrectly
Workers, whether employed by fraudulent mini-umbrella companies, or even their perfectly legal ‘regular’ umbrella company cousins, often report that they are paid late or incorrectly, with holiday pay among the most common entitlements to be trousered by umbrella companies as a whole. Some workers are continually placed on emergency tax codes so they end up having to pay more in tax than they actually owe.
In all instances, the use of umbrella companies works to disguise the real employer, and so lets off the bigger companies and recruitment agencies that actually hire these agency workers off the hook in terms of upholding employment rights.
Latest estimates show that taxpayers and workers together are being shortchanged to the tune of £4.5bn a year, including £1.5bn in unpaid wages and at least £1bn taken from the exchequer in non-payment of national insurance contributions from mini-umbrella company fraud. Another £2.5bn is thought to have been taken from workers in unpaid holiday pay.
While umbrella companies are rife in certain industries that rely heavily on agency workers such as construction, schools, and logistics, mini-umbrella company fraud has now shockingly infiltrated NHS Test and Trace.
Some NHS Test and Trace workers, including call handlers and testing site workers, many of whom first started work after losing their day jobs during the Covid crisis, told the BBC and Guardian how they first noticed they were being employed through this scam.
“Unite has for years warned against the use of umbrella companies which harm workers by depriving them of their employment rights and other entitlements such as holiday pay”
Gail Cartmail
Unite AGS
“Mini umbrella companies are simply the latest iteration of this shameful employment practice,” she added. “Covid testing centres are in effect being abused by creating a platform for tax avoidance, all the while workers are being shafted by, for example, in some cases not being the correct holiday pay or being paid late. What’s more, the way that umbrella companies disguise workers’ true employers only serves to further atomise an already insecure workforce.
Gail Cartmail, Unite AGS
The BBC’s File on 4 spoke to ‘John’ anonymously, who said he saw an advert for a job at a local testing site being run by outsourcing security giant G4S.
He called the recruitment agency listed in the advert, HR GO, and was soon hired. Although the work could be very stressful – John and his colleagues often lived in fear that they would catch the virus – the pay was decent at £10 an hour. It wasn’t until John looked carefully at his pay slip one day that he noticed he wasn’t being paid by G4S, or even the recruitment agency HR GO.
“I didn't recognise the company at all – I didn't know who they were,” John told the BBC. “Nobody on the site was being paid by the same company as I was. I think we all knew something untoward, sketchy was happening.”
Meanwhile, a former test-and-trace call handler in Yorkshire told the Guardian how she would be issued with a P45 notice and a new contract every few months when the name of her employer would change, even though the work she did stayed the exact same.
“It was really odd,” she said. “They would change without notice.”
It is understood that this shunting of workers from one mini-umbrella company to the next occurs so that the scammers can repeatedly take advantage of the £4,000 employment allowance tax break. Once the initial £4,000 is claimed, the worker is then moved to another mini-umbrella company again and again to cash in on yet another £4,000 in national insurance contribution discounts. In this way, the network of ghost companies never has to pay national insurance on workers at all.
Shocking revelations After the BBC and Guardian’s shocking revelations in May, the HMRC updated its guidance on mini-umbrella company fraud, noting, “Every business which either places or uses temporary labour should be aware of the potential dangers posed to their business by mini umbrella company fraud in their supply chain.
“Not only can a fraudulent supply chain lead to reputational and financial damage to your business, but your workers may not receive all they’re entitled to,” the guidance noted. “Mini umbrella company fraud also significantly reduces tax payments to HMRC including PAYE, National Insurance and VAT.”
The latest revelations also led to growing calls for stronger regulation of umbrella companies which at the moment are entirely self-regulated. Unite, however, has said the latest news shows that umbrella companies should be banned altogether.
“Unite has for years warned against the use of umbrella companies which harm workers by depriving them of their employment rights and other entitlements such as holiday pay,” said Unite assistant general secretary Gail Cartmail.
“Mini umbrella companies are simply the latest iteration of this shameful employment practice,” she added. “Covid testing centres are in effect being abused by creating a platform for tax avoidance, all the while workers are being shafted by, for example, in some cases not being the correct holiday pay or being paid late. What’s more, the way that umbrella companies disguise workers’ true employers only serves to further atomise an already insecure workforce.
“That large companies including G4S and Serco are employing subcontractors implicated in this tax fraud is nothing short of a scandal. Such practices should have no place in 21st century Britain, and much less in the running of vital pandemic services such as Test and Trace,” Cartmail continued.
“Testing centres would be much better placed under NHS or public health management, building on the terrific success of the vaccination programme, where we can be assured of ethical practice on employment and tax.”
“While we welcome that HMRC has updated its guidance on mini umbrella company fraud in response to the BBC’s and Guardian’s revelations, this simply does not go far enough. The government must take swift action and outlaw umbrella companies altogether,” urged Cartmail.
by Hajera Blagg
“While we welcome that HMRC has updated its guidance on mini umbrella company fraud in response to the BBC’s and Guardian’s revelations, this simply does not go far enough. The government must take swift action and outlaw umbrella companies altogether”
Gail Cartmail
Unite AGS
