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  • “Toodle oh-lay…Any umbrellas, any umbrellas to fix today?”

    13 May 2021

    Andy Wood

    So went the Flanagan and Allen song, The Umbrella Man, that we – somewhat oddly – sang at primary school. Somewhere between ‘I’ve got a lovely bunch of coconuts’ and ‘Streets of London’ (now that was a tune).

    I can only feel that it was to prepare me for this moment. This very blog.

    In the song, the eponymous Umbrella Man would fix umbrellas “be they small, be they big”. Ok, strictly, that invitation was for the parasols, but I assume the same would apply to their less fair-weather friends.

    However, there is no evidence at all of how the Umbrella Man might deal with a so-called ‘mini-umbrella’.

    This week, HMRC published guidance on Mini Umbrella Companies (“MUC”) and we were left in no doubt how HMRC feels about them.

    Essentially, many (potentially thousands of) UK companies are formed to provide workers to end users of labour. These new companies will usually have directors who are based in places as exotic as the Philippines. Each company will employ a handful of individuals meaning that the Company can claim the Employment Allowance and also register for the Flat Rate Scheme for VAT purposes. This makes these entities more profitable to the owners than the usual ‘vanilla’ umbrella structure.

    Further, there is a perception that these Companies may be allowed to wither on the vine – owing corporation tax, PAYE and other taxes in the process… only to be replaced by a new replacement.

    Clearly, these have been around for yonks. Indeed, the Guardian did an expose in 2017 on a provider of such structures.

    This has of course led to the usual howling about why HMRC has not acted sooner. But this isn’t the most interesting thing for me.

    Indeed, as far as I am concerned, it is the change in language in HMRC’s ‘guidance’ which is the most interesting element.

    Usually, we are told that it is ‘HMRC’s view’ that the ‘schemes do not work’.

    Not here.

    In a four-page note, HMRC mentions ‘fraud’ or ‘fraudulent’ over 20 times. It is almost as though its writer was attempting to optimise the guidance for SEO purposes!

    As well as being a budding SEO specialist, the author obviously watches Line of Duty, as the note also refers to ‘organised crime’ (just falling short of referring to OCG directly!).

    Mother of God.

    So HMRC is not pulling any punches here.

    Promoters of such arrangements should beware if HMRC also walks the walk as well it is talking the talk.

    Alongside this note, HMRC also publishes two other documents called “Supply Chain Due Diligence Principles” and “10 Things About Due Diligence: Supply Chain Assurance”.

    Essentially, these documents set out a warning that end users of temporary should ensure they conduct due diligence on the labour supply chain. Specifically, they say that “It is… important to consider the credibility of the supply, payment arrangements and other surrounding circumstances.”

    This is sensible advice.

    Of course, this would be terribly embarrassing if HMRC had ever be found to use umbrella schemes that had questionable tax arrangements welded on to the back end…

    [It should be noted, when HMRC was caught with its trousers down on this, we did not hear anything about the DD it had done on its own supply chain which was riddled with loan charge schemes]

    There is, of course, a serious message here in that the Finance Act 2017 introduced a new criminal offence which would mean that a Company could essentially be found responsible for failing to prevent tax evasion. I think it is not a stretch that an end-user who finds themselves involved with such providers could find themselves targeted under these provisions. The language used by HMRC seems to lay down a clear marker. 

    Of course, the Umbrella Man, by fixing the umbrellas with his ‘thingamajig’, was repairing them. A good wholesome trade (subject to precisely what the aforementioned ‘thingamajig’ might be).

    However, I suggest HMRC will look to ‘fix’ MUC’s in the slightly more sinister definition of the word. The nagging danger is that it is the end-user rather than the promoter who ultimately ‘gets fixed, real good’.

    If you have any queries about this article on Mini Umbrella Companies, or tax matters in general, then please get in touch.

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    Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to - respond / call you back - to discuss your enquiry and you will not be charged for this time.

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