This week's opinion: 20 May 2021

18 May 2021 / Andrew Hubbard

Issue: 4792 / Categories: Comment & Analysis

What is mini-umbrella company fraud?

What should we make of the developing story about ‘mini-umbrella company fraud’? Clearly something unsavoury is going on, but trying to piece together exactly what is happening is difficult. Despite the considerable investigatory work which has been done there are obviously many facts still to be discovered. But it does seem beyond doubt that there is exploitation of the employment allowance going on. The most likely explanation is that somewhere in the contractual chain somebody is recharging employment costs at a National Insurance inclusive rate even though contributions are not being paid.

We have seen similar industrial scale exploitation before of course. Some readers will recall the problems with the PAYE online incentives (‘Pavlovian tax’, Taxation, 9 March 2006, page 573), where many small companies were set up purely with the intention of claiming the allowance.

In light of these problems (which I suspect are only the tip of the iceberg), are such incentive schemes more trouble than they are worth? I confess that I find it hard, and no doubt many readers do too, to grasp the extent to which the tax system is threatened by concerted attacks – irrespective of whether they amount to outright criminality – of the kind that we have seen in these reports. Do ministers really take this problem into account when bringing forward proposals which make attractive soundbites? A £4,000 saving to a small business is not to be sneezed at, but would it really make the difference between an employer taking on staff or not? Is it worth the fraud risk?

If you do one thing...

Watch the Taxation Awards video – although the winners are revealed in this week’s magazine, Peter Rayney’s thoughts on the current state of the tax profession are well worth listening to over a cup of coffee.

Issue: 4792 / Categories: Comment & Analysis