Mini umbrella company in huge fraud scheme that caused HMRC an enormous headache!

Once a benign term, "mini umbrellas" now refers to Mini Umbrella Companies (MUCs) — payroll structures that HMRC has linked to large-scale tax fraud.

MUCs typically employ temporary workers, charge VAT to intermediaries, use the Flat Rate Scheme (FRS), and claim the Employment Allowance.

While legal in isolation, HMRC uncovered a vast scheme involving over 18,000 MUCs, coordinated to evade VAT and NIC. Losses are estimated in the hundreds of millions.

A key feature of the fraud was the use of Philippines-based individuals as directors of each MUC, recruited via social media and paid small fees. These directors had no operational control and were instructed by a British Virgin Island-based company.

In 2024, the First-tier Tribunal (FTT) upheld HMRC’s actions in removing the companies from the FRS and Employment Allowance and issuing VAT assessments but overturned the VAT de-registration, citing EU law, as no fraudster was identified and the directors lacked knowledge of wrongdoing.

However, in 2025, the Upper Tribunal (UT) reversed that part of the decision. It ruled that HMRC did not need to prove individual knowledge of fraud. The use of the MUCs' own VAT numbers in the fraud was sufficient grounds for de-registration.

The UT found HMRC’s actions proportionate and appropriate, confirming that targeting the scheme as a whole, even without naming individuals, satisfied legal requirements.

If you would like to utilise a compliant umbrella solution to engage and pay your self-employed operatives, please contact us on 0800 131 0131 or email sales@rollpay.co.uk.