Payroll pirates have a new bounty on their horizon. With Employer National Insurance Contributions (ErNICs) increasing in April, some businesses are looking for ways to cut costs—unfortunately, this means mini umbrella companies (MUCs) are creeping back into the supply chain as FCSA warned after the Budget last October.
We’ve already had reports from our members that some end clients and contractors are turning to mini umbrellas as a way to offset rising costs. If that sounds familiar, it’s time to take a step back and look at why these setups are a serious compliance risk.
What Are Mini Umbrella Companies?
Mini umbrella companies are small, usually short-lived businesses created to exploit tax loopholes. They split workers across multiple entities to claim tax breaks, particularly around National Insurance, ErNICs and VAT. In some cases, they also fail to pay the correct taxes entirely, leaving workers exposed to potential HMRC action.
For a more detailed breakdown, HMRC has a guide on spotting mini umbrella fraud.
Why Are They Back?
The increase in ErNICs from 13.8% to 15% and the drop in the threshold where ErNICs become payable are driving cost concerns, particularly in sectors reliant on temporary workers. Some businesses are looking for ways to offset this, and unscrupulous providers are all too happy to offer mini umbrellas as a “solution.” But make no mistake—this is tax dodging, not a legitimate cost-saving strategy.
The Risks of Mini Umbrella Companies
Engaging with mini umbrellas might seem like an easy way to reduce overheads, but the risks far outweigh the short-term benefits:
- HMRC Crackdowns – HMRC is actively targeting mini umbrellas and their users. If your business is linked to one, you could face penalties and be held liable for unpaid tax.
- Worker Impact – Workers engaged through mini umbrellas may find themselves without proper employment rights, statutory benefits, or even full pay.
- Reputational Damage – Getting caught up in tax avoidance schemes can destroy trust with clients, workers, and regulators.
How to Protect Your Supply Chain
If you’re a recruiter or end client, now is the time to tighten due diligence. Here’s what you can do:
- Use a Trusted Payroll Provider – Stick with FCSA-accredited umbrella companies that meet strict compliance standards.
- Check PAYE Records – If a company is cycling through multiple PAYE schemes for no reason, that’s a red flag.
- Review Contracts – Ensure contracts don’t allow for non-compliant payroll solutions to be inserted into your supply chain.
- Ask the Right Questions – If a payroll provider is offering “too good to be true” rates, ask how they’re achieving them.
Final Thoughts
With compliance pressures increasing, mini umbrella companies are an even riskier option than before. Cutting costs through tax avoidance isn’t just unethical—it’s a fast track to financial and legal trouble. If you want to ensure compliance while keeping costs low, solutions like veriPAYE offer transparency and security in payroll verification.
Don’t let payroll pirates sink your business. Stay vigilant, stay compliant, and keep mini umbrellas out of your supply chain.
