BBC report highlights sham ‘mini umbrella companies’

A new report from the BBC has again put the spotlight on schemes that create sham ‘mini umbrella companies’ that UK temporary workers are employed through, costing the UK “hundreds of millions of pounds” in lost taxes.

The report, to be broadcast on BBC Radio 4’s File on 4, reveals that more than 48,000 of these companies have been created in the past five years, involving the recruitment of more than 40,000 people from the Philippines to front the companies as ‘directors’. 

Collaborating with the BBC on the report was the Freelancer and Contractor Services Association (FCSA), the trade body representing the legitimate umbrella company industry.

The BBC reports that some staff at Covid-19 test centres run by outsourced services provider G4S have been employed by subcontractors in this type of scheme. Also identified in the report was recruiter HR GO, which had recruited people working at the test centres. Both companies have denied any wrongdoing to the BBC.

File on 4 discovered that one facet of these schemes was exploitation of the government’s Employment Allowance, which was intended to encourage companies to take on more workers, by offering an incentive to cut their National Insurance bill. Each individual mini umbrella scheme has only a small number of workers and so qualifies for the tax relief.

HMRC had warned against the mini umbrella company schemes in 2015. In 2017, the Daily Mirror newspaper also gave a warning, describing them as “a UK operation which has been paying members of the public… to become directors in name only…The UK nominee directors are later replaced by members of the public from the Philippines, who are paid… to be the new directors”.

Both the BBC and the Mirror identified an online portal called Compass Star Ltd as the organisation conducting the recruitment drive in the Philippines. Today (10 May 2021), a recruitment page for Compass Star remained on Facebook.

The only qualifications required are two valid sets of government-issued ID, being aged between 18 and 65, internet access, a valid personal email address, an active personal mobile phone and a ‘messege’ [sic] to the company, including the applicant’s full name.

Phil Pluck, CEO of the FCSA, told Recruiter today: “The scale of and rapid proliferation of MUCs is quite staggering, with one scheme we became aware of operating more than 60,000 mini companies, passing employees between them.”

Pluck acknowledged that regulation could help, “along with robust policing” to shut down the scams. However, he added: “These are not umbrella companies. They are illegal scams operating outside of UK jurisdiction, and the programme will demonstrate that many are currently working out of the Philippines. They steal from both the contractor and UK government.”

He went on to say: “It does beg the question: what due diligence did the end hirers and recruitment agencies actually do before sending contractors in the direction of these crooks?”

Representatives of HR GO, a corporate Recruitment & Employment Confederation (REC) member, did not respond today to an enquiry from Recruiter. However, when contacted, Kate Shoesmith, deputy CEO of the REC, said: “In line with the processes our members have established, the REC will seek further information from HR GO so that we can understand whether processes did leave workers unclear about who they were employed by.”

HM Revenue & Customs told Recruiter that updated guidance on MUC fraud had been published today (10 May 2021) which “we will be sharing with stakeholders and advocates in the coming week, and we will continue to work with trade bodies and other government departments to raise awareness of MUC fraud”. (

HMRC also noted that in 2017, it had introduced the Trader of Limited Cost Legislation after seeing a surge in MUCs. “This helped to remove some businesses setting up MUCs and hence reduced their number,” HMRC said.

HMRC added that its Fraud Investigation Service is using its civil and criminal powers to challenge those who are involved and facilitating the MUC fraud, recently deregistering more than 22,000 MUCs who are believed to be exploiting the VAT Flat Rate Scheme and removing their access to the Employment Allowance. 

The agency also noted that “a number of arrests” had been made in relation to MUC fraud and that it had also “taken steps to recover input tax in cases where it has established that a business in the supply chain knew, or should have known, that there was fraud”.

Commenting on the BBC report, Crawford Temple, CEO of Professional Passport, independent assessor of payment intermediary compliance, said: “When off-payroll working was introduced to the public sector in 2017, HMRC was warned that limiting the recovery of tax from the fee payer would lead to many forms of abuse. And so, it is playing out as predicted. The likely reason why the Philippines is being used in this instance is because there is no double taxation treaty between the UK and the Philippines, which makes it harder for HMRC to recover any unpaid taxes.”

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