Mini Umbrella Schemes – fraudulent, court rules

Mini umbrellas considered fraudulent

The Tax Tribunal has confirmed that mini umbrella schemes are fraudulent.

Over recent years, there has been widespread publicity about the use of mini umbrella schemes (MUS) in the supply sector with HMRC alleging that they are fraudulent. 

MUS can offer a supply agency more favourable terms as they take advantage of tax reliefs available to small employers. In particular, the MUS typically registers for the flat rate VAT scheme and claims employment allowance available for genuine start-up businesses.

The tax tribunal has now agreed that these schemes are indeed fraudulent.

Implications for agencies

Whilst this is a decision of the first-tier tribunal and therefore may be subject to appeal, the conclusions are emphatic and, considering the facts, unsurprising.

Whilst the use of MUS may appear to offer financial advantages to agencies working to increasingly tight margins, the risks must now be considered, with potential serious reputational damage as well as potential liability if found to be enabling or turning a blind eye to tax evasion. One thing seems certain, with this decision to rely on, HMRC is likely to pursue these cases and criminal prosecutions of scheme promotors and conspirators may follow.

This will undoubtedly impact on supply costs and all contracts involved, as a result breaches of contract are likely and could be widespread. Directors and businesses could be at risk.

As experts in recruitment and employment contracts in the sector Lawspeed can help with strategy and contract advice as well as with negotiations where necessary, please call Lawspeed on 01273236236.

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