Organised Crime in the Department of Health and Social Care supply chain

TaxWatch is calling on the Department of Health and Social Care (DHSC) to investigate the fraudulent use of Mini Umbrella Companies in DHSC’s procurement process.

TaxWatch has written to the Department of Health and Social Care (DHSC) multiple times asking what has been done about apparent abuses in the department’s procurement process.

MUCs are used when an agency divides its contractor workforce into a series of small companies, fraudulently claiming that each company is an independent entity. This can cut their annual Employers’ NICs liability by up to £4,000 per employee by claiming Employment Allowance which is intended to help legitimate small businesses. The act of setting up a mini umbrella company is in itself not illegal.

A recent HMRC publication on Umbrella Companies stated that:

“MUC fraud is perpetrated by organised criminals [emphasis added]. It presents a threat to the UK Exchequer and creates an uneven playing field for those employment businesses and umbrella companies who follow the rules. Workers in MUCs usually do not know who their employer is and may not be aware of their entitlement to employment rights. They can be moved regularly between MUCs to help maximise profits from the fraud.”¹Call for Evidence: Umbrella Company Market, HM Treasury, HMRC, Department for Business, Energy & Industrial Strategy, November 2021, … Continue reading

The scandal first emerged in 2015 when the BBC Today Programme revealed Anderson Group, then one of the recruitment industry’s most high profile companies, was found to be promoting an abusive scheme.²BBC uncovers ‘aggressive’ tax avoidance scheme, BBC, 29 May 2015, https://www.bbc.co.uk/news/business-32914372

HMRC’s Fraud Investigation Service has taken action in order to combat MUC fraud, including working with government departments to raise awareness, and stresses that it is the responsibility of the business using temporary labour to undertake necessary and proportionate due diligence checks.³Mini umbrella company fraud, HMRC, 10 May 2021, https://www.gov.uk/guidance/mini-umbrella-company-fraud

In May of last year, a BBC Radio 4 File on 4 documentary revealed that more than 40,000 people from the Philippines have been recruited to front MUCs in the UK.⁴Britain’s Ghost Companies, File on 4, 11 May 2021, https://www.bbc.co.uk/sounds/play/m000vwtm File on 4 went on to reveal that some staff at G4S run Covid test centres have been employed by subcontractors using MUCs. We know of no legitimate purpose for the usage of these MUCs by those subcontractors.

As the G4S contract for these centres will ultimately have been provided by the DHSC, then it is the responsibility of the DHSC to seek assurances from those in the supply chain that fraudulent activity will not be conducted. HMRC guidance states that any business utilising temporary labour should “be aware of the potential dangers posed to their business by mini umbrella company fraud in their supply chain”.

The Department of Health & Social Care clearly states in its terms for a short-form contract that the supplier, in this case G4S, must

“comply with the Income Tax (Earnings and Pensions) Act 2003 and all other statutes and regulations relating to income tax, the Social Security Contributions and Benefits Act 1992 (including IR35) and National Insurance contributions”.⁵Short-form contracts, Department of Health & Social Care, March 2020, … Continue reading

In this case the G4S appears to have sub-contracted some of the work to agencies that appear to have used MUCs. G4S said that when this usage of MUCs came to its attention, HMRC was notified, and that all payments to agencies included appropriate NICs. ⁶Anna Meisel and Angus Crawford, Thousands recruited to front UK firms in ‘tax dodge’, BBC News, 10 May 2021, https://www.bbc.co.uk/news/uk-57021128

We have written to the DHSC several times over the past six months, though have received no response.

A G4S spokesperson said: “To deliver these services, G4S works with employment agencies which are Recruitment and Employment Confederation accredited and members of the government’s Crown Commercial Service (CCS) Framework.”

It said their payments to agencies include all of the appropriate national insurance contributions – and all staff working on the G4S contracts pay their national insurance contributions correctly.

Photo by Ricardo Resende on Unsplash