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Mini Umbrellas

One of the most commercially attractive forms of tax-evasive payroll models for the last few years has been the misleadingly titled Mini Umbrella scheme.

Providers differ in the detail but broadly:

  1. The Provider sets up a Ltd company/companies (VAT Income Generators) and registers them for Flat Rate VAT
    1. These companies usually ensure they spend 2% of their turnover on “goods” each year to access preferable FRV rates. These Providers are never short of PPE, re-saleable software or stationary
  2. The Provider then sets up hundreds of Ltd companies (Micro Businesses) using a UK registered director and assigns them below a Vat Income Generator for contractual purposes
  3. The directors of the Micro Businesses are then replaced with details of a foreign national director (usually from the Philippines at time of writing)
  4. Workers are introduced to the Provider who registers them and assigns them to a Micro Business
  5. When the Provider receives a payroll request, they send the funds to the relevant Vat Income Generator and then onto the relevant Micro Business before paying the Worker
  6. Once the £5,000 Employment Allowance has been used up, the Workers are P45’d and transferred to a different Micro Business

From a Workers’ perspective, they are employed on a PAYE rate with a PAYE payslip and it appears to be a legitimate PEO model. With no legal requirement to show the employers name or PAYE reference on a payslip, the Worker can be oblivious to the system they’ve been enrolled on until they check their online tax account and see that what they believed to be a continuous period of employment is in fact a number of short employments.

The Provider usually offers this service to a client as an outsourced PAYE employment with no charge and no Employers NI or apprenticeship levy costs (since the Micro Businesses fall below the apprenticeship levy thresholds). They are also able to offer this service without pension as Workers can be switched before the deferral period expires. From an agency perspective, this significantly reduces their costs.

For the Provider, the profitability of such models vastly exceeds PEO (its nearest comparator).


40 hours @ £9.50 PEO Mini Umbrella
Gross + Holiday Liability £425.87 £425.87
Employers NI Liability £37.76 £0
Apprenticeship Levy Liability £2.13 £0
Employers Pension Liability £12.78 £0
Example Margin £15.00 £0
FRV Profit (Transport with first year discount rate of 9%) £0.00 £46.85
Total Invoice to Agency £493.54 £425.87
Total Revenue to Intermediary £15.00 £46.85


Even on a NLW Worker, the Agency can see a saving of circa 15% compared with a legitimate PEO model and the Mini Umbrella Provider is seeing revenue 300% of their FCSA competitor. This has seen even large agencies being named in reports by the BBC and the Guardian, despite the HMRC making a number of arrests and clearly spotlighting the scheme.

The HMRC give clear guidance on how to identify these schemes but the savings on offer have often overwhelmed the good judgement of recruiters. Some Providers have become so over-confident in the lack of HMRC action that they share details of the Micro Businesses.

We analysed a single months payroll for a single agency and compared it with the markers listed by the HMRC and this is what we observed:

Unusual company names

“Multiple companies are often set up around the same time and given a similar or unusual name”

Nearly 300 Micro Businesses were used over this period. In the past, we have seen such tranches with themed names (a tranche of insect names, then flower names etc.) but the bizarre company names, unrelated to the business purpose, indicates usage of a random name generator.

Unrelated business activity

“The business activities listed on Companies House entries will often not relate to the services provided by the workers.”

The agency supplied exclusively into the driving and warehouse sectors. The Micro Businesses supplying into them included Event Catering (8.5% FRV), Public Houses and Bars (4% FRV) and Office Administrative Services (13% FRV). It appears that the Providers have abandoned caution around which Micro Business is used with each client.

Foreign national directors

“Foreign nationals who have no previous experience in the UK labour supply industry, are often listed as directors. They can replace a temporary UK resident director after a short period of time.”

In all cases, the director was a Filipino national. The founding Director was always a UK national and the same individual was often involved in opening multiple companies. In the past, internal staff or family members were used for this but in a sad development, the Providers are using desperate individuals through Facebook groups or word of mouth. These individuals are paid to receive the companies house letter and then upload it to the Provider, unwittingly engaging in a tax evasive process. With the rising cost of living, this predatory practice will become more attractive.

Movement of workers

“Employees may be moved frequently between different mini umbrella companies.”

In the dataset we reviewed, 20% of the workforce was being switched from one Micro Business to another each month. In sectors with higher average salaries, this transition would occur even more regularly.

Short-lived businesses (also known as transient businesses)

“These individual mini umbrella companies have a relatively short lifespan (often less than 18 months)”

Our review did not cover a long enough period of time to analyse this fully, but the Micro Businesses are being monitored and we fully expect them to close down once their 1% FRV discount expires.

Other Relevant Legislation

One factor that recruiters utilising these Providers fail to account for is the legal requirement that “In practice, this means a key information document will need to be one of the first things an employment business gives agency workers.”

Since they are unable to advise the Worker before registration of who their employer will be, they are unable to meet their KID obligations with regards to the timing.

End Hirer Audits

End Hirers appear to be oblivious to these arrangements and don’t explore them in any way, merely satisfied that PAYE is being operated.  Indeed,  they mistakenly prefer them over legitimate FCSA accredited umbrella arrangements.   Likely reason is that they offer simple payslips and NMW is easily adhered to,  as there is no management margin.  Of course, with compliant umbrella the entry point is higher at circa £12/hour plus


There is no legitimate way for agencies and end hirers to be shielded from the statutory costs of ERSNIC and pension at the NMW end of the market.  If the offering is “too good to be true”, there are ERSNIC savings and there is no management margin then there is no defence from a HMRC investigation, in working with these arrangements.  HMRC will state that “you knew, or should have known, you should have done your due diligence”.  Use such arrangements at your peril.

Post by Louise at Numbermill